Asia FX rattles and Merz stumbles

What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Finance and Markets

World markets are getting nervy again on the back of fresh salvos in Washington's trade war, a striking slide in the U.S. dollar in Asia and an unexpected political twist in Germany.     

I'll dive into all of the market-moving news below.

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

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Wall Street stock indexes broke a nine-day winning streak on Monday, and futures remain in the red ahead of today's open, with fresh anxiety seeping in as the Federal Reserve kicks off its two day policy meeting later on Tuesday.

The recent market recovery had hinged in part on investor hopes for a measure of trade detente between the U.S. and China after Beijing last week said it was evaluating an offer from Washington to hold talks over tariffs.

But that trail seems to have gone cold, and market focus has instead shifted to an unexplained 10% surge in Taiwan's dollar on Friday and Monday. Upward pressure on other Asia currencies such as Hong Kong's dollar is generating chatter about whether dollar depreciation will be a central part of Washington's trade negotiations.

While holidays across Asia on Monday may have exaggerated these moves somewhat, speculation is rising about whether some regional governments may be backing away from U.S. currency and bond holdings. 

The Hong Kong Monetary Authority said on Tuesday that is has been reducing duration of its Treasury holdings and diversifying into other currencies and assets.

With no new breakthrough in bilateral trade talks in the mix, the fallout from the upheaval remained front and centre as U.S. corporate earnings season continues.         

Ford Motor's stock fell overnight after it suspended its annual guidance because of uncertainty around tariffs, saying the levies would cost the company about $1.5 billion in adjusted earnings before interest and taxes.

And President Donald Trump opened new fronts on the tariff war by saying he would impose a 100% tariff on all movies produced outside the U.S., though he gave few details on just how such a levy would work. Netflix, Amazon and Paramount Global all fell about 2% on Monday as a result.

Moving to Europe, German and euro zone stocks fell back more than 1%, and German bond yields dipped after German conservative leader Friedrich Merz failed to secure enough parliamentary votes to become chancellor in a blow that could throw politics in Europe's largest economy into disarray.

Merz, who led his CDU/CSU conservatives to a federal election victory in February and signed a coalition deal with the centre-left Social Democrats, won just 310 votes in the secret ballot in the Bundestag - six short of an absolute majority. 

Although the surprise outcome raises concerns about the transformative economic plans promised by Merz, the Bundestag has 14 days to elect him or another chancellor, and he's still expected to get through eventually. The euro was steady as a result.