New quarter, same problem

03:40 |

Get full access to Reuters.com for just $1/week. Subscribe now.

Morning Bid U.S.

What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

Trying to keep up with the latest tariff news? Our new daily news digest offers a rundown of the top market-moving headlines impacting global trade. Sign up for Tariff Watch here.

Monday's small gain in the S&P 500 did little to flatter the worst quarter since 2022 and even less to deflect investors' main concern: the still undefined tariff sweep coming from Washington this week.

I'll explain what else is moving markets this morning and then discuss how Germany's debt reforms may require reshaping some of the rules governing the euro.

I'd love to hear from you, so please reach out to me at mike.dolan@thomsonreuters.com.

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

Today's Market Minute

The "Buy Canadian" movement is gathering pace, and more U.S. companies are saying retailers from supermarkets to convenience stores are shunning their products, as patriotic consumerism grows.
China and Russia are "friends forever, never enemies," Chinese's Foreign Minister Wang Yi said in remarks published on Tuesday during a visit to Moscow in which he also welcomed signs of normalising ties between Washington and Moscow.
Shares in the major drug companies have come under pressure after reports that the Food and Drug Administration's top vaccine official has been forced to resign as part of the Trump administration's overhaul of federal government.
Japan will keep up a strong push for the U.S. to exempt it from auto tariffs, according to Prime Minister Shigeru Ishiba.
The Office of the U.S. Trade Representative has released its annual report on foreign trade barriers and, at 397 pages, lists any foreign policies and regulations that it regards as an issue.

New quarter, same problem

U.S. President Donald Trump's administration released on Monday an encyclopedic list of foreign countries' policies and regulations it regards as trade barriers. The expectation is that the full tariff announcement, including 'reciprocal' tariffs', will come at 3:00 PM eastern time tomorrow.

Countries around the world appear to have given up last minute negotiations, with many preparing retaliatory measures instead.

In what appeared like an extraordinary development, Chinese state media yesterday said China, Japan and South Korea are coordinating a response, though Tokyo and Seoul played that statement down.

Wall Street investors, having just clocked their worst first quarter since the pandemic, have little certainty to cling to apart from the rising probability of a recession.

Goldman Sachs joined JPMorgan in arguing that the chance of recession in the U.S. over the next 12 months has jumped. They give it slightly more than a one-in-three chance, a tick below the 40% chance JPM now sees.

U.S. stock futures were basically flat ahead of Tuesday's bell, but U.S. equities are once again underperforming more buoyant world markets, especially in Europe. Negative technical signals are mounting for the main S&P 500 index, which hit seven-month lows intraday on Monday before the late bounce.

U.S. Treasuries also appear to be increasingly worried about a recession, with three interest rate cuts in 2025 now priced into futures markets.

Ten-year Treasury yields slipped to their lowest since March 11 early on Tuesday.

Gold fed off the whole smorgasbord of concerns, hitting another record at $3,148 per ounce after its best quarter since 1986.

The dollar appears less sure about which way to lean.

Its DXY index slipped a touch on Tuesday, as the yen and the euro held firm. China's yuan, Mexican peso and Canada's dollar, by contrast, all slipped lower against the greenback.

In Europe, softer-than-forecast core euro zone inflation readings for March encouraged bets on further easing from the European Central Bank and lifted regional stocks there by more than 1%.

The political theatre surrounding Monday's graft conviction for French far-right leader Marine Le Pen, which bars her from standing in 2027's Presidential election, played out with little disturbance in financial markets.

Chinese stocks were less positive earlier though slightly in the green.

Decent readings from a service sector survey were offset by news that the U.S. had sanctioned six senior Chinese and Hong Kong officials, citing "transnational repression" and further erosion of Hong Kong's autonomy.

Tensions also appeared to rise in regional geopolitics, as China staged military drills off Taiwan's north, south and east coasts and called Taiwanese President Lai Ching-te a "parasite". Taiwan sent warships to respond to China's navy approaching its shores.

Let's now turn back to Europe, where Germany's push for more spending may force some long-held EU guidelines to be revised.

Maastricht goalposts need shifting to allow Germany boost

Germany's need to expand its budget could fundamentally alter EU debt guidelines for the first time since the single currency was born 26 years ago.

Germany's dramatic decision this year to rush through historic fiscal reforms to make way for massive spending on defence and infrastructure has raised questions about just how much of the stimulus it can deliver without running afoul of EU monitors.

Some economists think the euro zone's long-standing debt/GDP "reference rate" of 60% could and should be lifted to 90% to ensure nothing will preclude more German spending, as this splurge is now seen as necessary to support an entire region scrambling to defend itself and navigate a rapidly escalating trade war with the United States.

These economists also argue that boosting long-term growth prospects is apt to do as much to make higher public debts sustainable as would adhering to arguably outdated public debt targets. Even credit rating agencies agreed on that when assessing the potential impact of Germany's removal of its self-imposed "debt brake".

Graphics are produced by Reuters.

Jeromin Zettelmeyer, director at the Brussels-based think tank Bruegel, last week made the point that Berlin's move should be sustainable over the coming decade if the increase in debt is accompanied by an increase in growth potential.

But, even so, German debt/GDP would very likely have to rise to 100%. And, as it stands, that breaches EU rules.

Read the full column

Today's key chart

Graphics are produced by Reuters.

Even though the S&P 500 managed to eke out a small gain on the final session of its worst quarter in three years, the gradual widening of corporate borrowing premia continued. Spreads on high-yield U.S. 'junk' bonds hit their widest in almost eight months on Monday at 355 basis points, with related high-yield volatility gauges at their highest since early August. While these spread levels are still far from alarming, they bear watching in the event of any escalation of U.S. recession jitters.

Today's events to watch

U.S. March manufacturing survey from ISM and S&P Global, February JOLTS job openings data, February construction spending, Dallas Federal Reserve March service sector survey
Richmond Federal Reserve Bank President Thomas Barkin speaks; European Central Bank President Christine Lagarde and ECB chief economist Philip Lane both speak; Bank of England policymaker Megan Greene speaks

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Sponsors are not involved in the creation of newsletters or other Reuters news content. Advertise in this newsletter or on Reuters' website

Morning Bid is sent every weekday morning. Think your friend or colleague should know about us? Forward this newsletter to them. They can also sign up here.

Want to stop receiving this email? Unsubscribe here. To manage which newsletters you're signed up for, click here.

Terms & Conditions and Privacy Statement