By Mike Dolan
LONDON (Reuters) – What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets
It’s Friday, so today I’ll provide a quick overview of what’s happening in global markets and then offer you some weekend reading suggestions away from the headlines.
Today’s Market Minute
* The brief reprieve for battered stocks seen after President Donald Trump decided to pause duties for dozens of countries quickly dissipated, as attention returned to his escalating trade war with China that has fuelled global recession fears.
* Safe-haven gold surpassed the key $3,200 mark for the first time on Friday, spurred by a weaker dollar and economic concerns due to an intensifying trade war.
* Just before President Donald Trump’s social media post on Wednesday pausing tariffs, some unidentified options traders placed bets worth millions of dollars that the market would rebound, data shows. Some Democratic lawmakers are calling for investigations into whether Trump’s policy reversal led to any market manipulation or insider trading.
* China said on Thursday it would immediately restrict imports of Hollywood films in retaliation for President Donald Trump’s escalation of U.S. tariffs on imported Chinese goods, targeting one of the most high-profile American exports.
* In hope of avoiding punishing U.S. tariffs, Vietnam is prepared to crack down on Chinese goods being shipped to the United States via its territory and will tighten controls on sensitive exports to China, according to a person familiar with the matter and a government document seen by Reuters.
Capital flight fears sink dollar
As the U.S.-China trade war escalates and overseas investors brace for another three months of seemingly daily shifts in U.S. policymaking and whiplashes on Wall Street, the dollar is sinking on fears of foreign capital flight from America.
Wall Street stocks suffered a relapse on Thursday, which wiped out a third of the prior day’s surge. This was matched by an ongoing selloff in Treasury bonds. Now markets are bracing for a string of U.S. company profit warnings as the corporate earnings season kicks off in earnest later today.
But the dollar’s slide and the dash for overseas havens may be generating the most anxiety, with the dollar’s DXY index index hitting its lowest in three years, led by the euro’s surge to its highest since early 2022 and the Swiss franc’s climb to its strongest in 10 years.
Gold prices – now up 23% for the year so far – soared anew to record highs.
This all partly reflects the alarming levels of uncertainty and fears about the direction of the U.S. economy, but some economists reckon the move is also a matter of simple math. If Washington is intent on wiping out the U.S. trade deficit, it also has to accept an evaporation of the counter-balancing capital surplus, essentially the excess of overseas investments in America over U.S. investments abroad.
The resulting weaker dollar may be the holy grail that some in the administration are seeking to regain U.S. export competitiveness, but it could come with a huge and destabilising cost.
Bank of America’s weekly tally of mutual fund flows suggests this flight was already underway this week. Foreign investors shed $6.5 billion of U.S. equity in the five trading sessions ending on Wednesday, while funds holding U.S. ‘junk’ bonds saw the biggest weekly outflow on record of almost $16 billion.
This relatively narrow set of fund metrics is small beer against the bigger picture of foreign exposure to U.S. markets, hence the growing concern playing out in the currency market.
Using Federal Reserve data, Apollo chief economist Torsten Slok showed how foreigners own a fifth of the U.S. equity market, with some $18.5 trillion of holdings, as well as almost one third of both the Treasury and U.S. corporate bond markets, some $7.2 trillion and $4.6 trillion, respectively.
TS Lombard chief economist Dario Perkins sliced the Fed numbers in a different way. He points out that the world has accumulated an exposure to U.S. equity of around $14 trillion since 2012, with Europe responsible for roughly half that, more than the entire market cap of the Euro Stoxx 50.
Meanwhile, the surging euro, on course for its biggest weekly rise since 2020, is pricing in the likelihood of another European Central Bank interest rate cut next week.
What next? As stocks around the world sink yet again on Friday, with the notable exception of China and Hong Kong bourses likely buoyed by official state buying, U.S. stock futures remained in the red ahead of earnings reports from the big U.S. banks today.
With China appearing ready to go toe-to-toe with the U.S., the two biggest economies in the world have now effectively placed trade embargoes on each other, intensifying fears of a global economic crunch.
Weekend reading and listening suggestions
Here are some reading and listening suggestions to help you make sense of today’s volatile financial markets and evolving geopolitical landscape.
1. Undone alliances. The latest issue of the Council on Foreign Relations’ Foreign Affairs magazine leads with an article on “Underestimating China” by Kurt Campbell and Rush Doshi. They argue the United States can only compete strategically with China by building coalitions, not by retreating from them. “If the United States fails to pursue scale with others, or retreats to the Western hemisphere while undoing its alliances, the contest for the next century will be China’s to lose.”
2. Churchill and the dollar. In a column for Project Syndicate, University of California, Berkeley professor and respected currency scholar Barry Eichengreen argues the United States should heed the lessons of how sterling lost its status as the global reserve currency a century ago. “What was achieved over a long period could be demolished in the blink of an eye – or with the stroke of a president’s pen.”
3. Fentanyl fight. A Reuters Special Report by correspondents Maurice Tamman, Laura Gottesdiener and Kristina Cooke shows how Federal spending cuts instigated by the White House threatens to reverse what was a steep decline in American overdose deaths and potentially jeopardize other gains in the battle against synthetic opioids.
4. Brexit hit. With the world wondering how to calculate the impact of unravelling deeply integrated trade relationships, a study published on the Centre for Economic Policy Research’s (CEPR) VOXeu website shows how Brexit led to 6.4% drop in worldwide UK exports and a 3.1% drop in imports.
5. Independence in name. In a CEPR podcast, former Bank of England policy maker and Citigroup chief economist Willem Buiter discusses central bank independence and how the relationship between central banks and governments, particularly their role as financial agents of the state, creates potential risks that could threaten economic stability.
6. French deportations. Hundreds of foreign nationals previously protected because they grew up in France now face the risk of expulsion under legislation introduced last year. Reuters correspondents Sofia Christensen, Juliette Jabkhiro and Layli Foroudi interview some of those affected and detail the impact of the new laws.
7. China InetlLip-Bu Tan, the man chosen to lead Intel, the U.S.’s largest chip maker, has invested in hundreds of Chinese tech firms, including at least eight with links to the People’s Liberation Army, according to a Reuters review of corporate filings. The report by Reuters correspondents Eduardo Baptista, Stephen Nellis and Max A. Cherney shows how Tan, one of Silicon Valley’s longest-running investors in Chinese tech, raised questions among some investors about the extent of his ongoing involvement with businesses in China.
Chart of the day
Foreign investors in U.S. assets are clearly spooked by Washington’s trade war and concerned about radical shifts in U.S. policymaking, alliances and government institutions. If they decide to repatriate their capital longer-term, it could undermine U.S. financial markets considerably. By way of illustrating just how much, Apollo chief economist Torsten Slok this week outlined the scale of these massive holdings.
Today’s events to watch
* U.S. March producer price report, University of Michigan April consumer sentiment survey
* New York Federal Reserve President John Williams, Boston Fed President Susan Collins, St Louis Fed chief Alberto Musalem speak
* US corporate earnings: JPMorgan, Morgan Stanley, Bank of New York Mellon, Wells Fargo, BlackRock, Fastenal
* Eurogroup and other European Union finance ministers meet in Warsaw, with European Central Bank President Christine Lagarde
* Spanish Prime Minister Pedro Sanchez meets China’s President Xi Jinping and Premier Li Qiang in Beijing
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.
(By Mike Dolan; Editing by Anna Szymanski)
