LONDON, April 10 (Reuters) - What matters in U.S. and

global markets today

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

Markets

Even compared to other market rollercoasters, the one we've been

on over the last week has been extreme. We've seen some of the

biggest intra-week swings in 25 years, with few investors having

a clear idea of what will happen next in the unfolding global

trade war.

I'll discuss all the twists and turns below and then explore

where all this nervy capital is likely to flee.

Today's Market Minute

* Global shares surged and a manic bond selloff stabilised on

Thursday after U.S. President Donald Trump said he would

temporarily lower the hefty duties he had just imposed on dozens

of countries.

* The "Magnificent Seven" stocks amassed more than $1.5 trillion

in market value on Wednesday after Trump's surprise

announcement.

* Chinese companies that sell products on Amazon are preparing

to hike prices for the U.S. or quit that market due to President

Donald Trump's unprecedented tariff hikes, sellers and the head

of China's largest e-commerce association said.

* Ray Dalio, founder of the world's largest hedge fund, called

for a U.S. deal with the Chinese on tariffs.

* Wall Street bosses are girding for Europe to sideline American

investment banks in response to the tariff war unleashed by U.S.

President Donald Trump, fearing client boycotts and in a

worst-case scenario, even formal restrictions.

Ninety more days of guesswork

The S&P 500 staged a near 10% bounceback on Wednesday

after President Donald Trump announced a 90-day pause in his

sweeping "reciprocal" tariff hikes, while also intensifying

pressure on Beijing by jacking up U.S. levies on Chinese goods

to 125%.

China refused to be cowed and responded on Thursday by

hiking tariffs on U.S. imports to 84%, along with additional

restrictions on 18 U.S. companies.

Whatever happens with Trump's broader tariff push - and 10%

universal tariffs remain despite the hiatus - the world's two

biggest economies are in a full-blown trade war.

Wall Street's relief surge rippled across stock markets

around the world overnight, with Japan's Nikkei almost

matching the S&P 500 rally and European stocks

rebounding about 5%. Even China's stocks rose 1-2%.

Now what?

Taking a step back from the wild volatility of the past 24

hours - and wild it was with the VIX 'fear index' still

near 40, almost twice historical averages - the S&P 500 remains

down 4% since the April 2 tariff salvo, and 10-year U.S.

Treasury yields are 10 basis points higher than a week ago. U.S.

stock futures have also given back 2-3%

of Wednesday's jump.

The dollar remains slightly nonplussed in the middle

of all that, with its main DXY index down about 2% since April

1. But the greenback is up 1% against China's offshore yuan

over that period, as the People's Bank of China allowed

the official rate to weaken for the sixth straight day to

19-month lows.

While the U.S.-China row deepens, other countries now have

to consider how they will handle the pause. The European

Commission said it would take the time to assess Trump's delay

and consult member states.

But uncertainty over what will happen in three months' time

will now cast a pall over the second quarter, with much

corporate planning likely sidelined for longer. Meanwhile,

full-year guidance from the looming first-quarter earnings

season will kick in tomorrow.

Much of the speculation on Wednesday was that a sharp

selloff in Treasuries this week was chiefly responsible for

Trump blinking on wider tariffs.

While worries about China's potential withdrawal from

Treasuries mounted, the 10-year note auction went

better than feared on Wednesday. And 30-year bonds are going

under the hammer later on Thursday.

The stock rally took almost one full Federal Reserve rate

cut out of futures pricing for the remainder of the year. Fed

minutes were also released from the most recent meeting. The

tone was cautious, though these comments have clearly been

overtaken by last week's events and Chair Jerome Powell's

hawkish speech from last Friday.

U.S. March inflation numbers that are due for release later

on Thursday will similarly be slightly out of date.

For today's deep dive, I'll look into just where frightened

money is heading now that Treasuries' 'safe haven' qualities

have been compromised.

Safe European home? Scared money seeks German bunds

At a scary moment when almost no place in global markets looks

safe, Germany's recently rocky government bonds may be one of

the few true havens left.

A week of precipitous global stock market losses driven by

Washington's unfolding trade war took an alarming turn on

Tuesday as offsetting safety bets in U.S. Treasury bonds turned

sour too.

The wild and unpredictable ride continued late on Wednesday,

when Trump blinked in his tariff campaign and paused the

so-called 'reciprocal' import levies for 90 days for all except

China, prompting a mind-blowing 8% in stocks.

Whatever happens next, the market playbook up to that point

sets a jarring precedent for the inevitable next convulsion.

Treasuries had been behaving well again this year as a

portfolio buffer, surging in value as equities tanked on tariff

fears. Indeed, the correlation between the two asset classes

actually hit its most negative in two years last week.

But that correlation flipped violently again this week.

As an example of how that affects savings pots, exchange

traded funds that track standard 60/40 equity/bond portfolios

, which had been fairly serene from November's election

right through the turbulent first quarter, tanked 8% since the

U.S. tariff plan was first laid out last Wednesday.

Indeed, U.S. Treasury ETFs and the S&P 500

are down more than 2% each this week.

The twin stock/bond selloff seems to have had many triggers,

including the escalating U.S.-China tariff battle, fears that

traders' margin calls in risky bets were leading to liquidation

of safe assets, and a perceived reluctance of the Federal

Reserve to ease credit.

All may have been in play, but the burgeoning narrative now

is that overseas investors are fleeing American assets at large

due to the seemingly chaotic nature of Trump's trade war. With

total U.S. investment liabilities to foreign savers standing at

more than $62 trillion at the end of last year, that thought is

alarming, to say the least.

Goldman Sachs currency strategist Michael Cahill said U.S.

assets and the dollar were being hit by recessionary fears and

high uncertainty about the endgame in the trade war as well as a

growing worry about the stability of U.S. institutions.

"Negative trends in U.S. governance and institutions are

eroding the appeal of U.S. assets for foreign investors," Cahill

told clients this week.

The capital flight argument should be especially worrying

for U.S. savers and retirees nursing expensively priced

investments, pumped up for years with overseas money drawn in by

the U.S. "exceptionalism" theme.

Those worries often, understandably, home in on China, not

least due to its $760 billion of Treasury holdings, which could

potentially be weaponized if the trade war escalation continues.

But much of the additional foreign money that flooded into

America's megacap stocks and relatively high-yielding bonds over

the past decade was mostly from Europe.

And scared money tends to go home.

BUNKER BUNDS

As U.S. Treasuries sold off violently this week, Europe's

traditional safe haven - Germany's government bunds - rallied

sharply. So much so that the yield premium of U.S. versus German

10-year debt surged 30 basis points this week to

some 170 bps - the widest spread in a month.

Even though bunds were jarred in March by the

new German government's trillion euro defence and infrastructure

spending push, they have roared back since, despite an

intensifying trade war that has major ramifications for euro

area growth and European Central Bank policy.

But what has been truly notable this week is that bunds

behaved like a safe haven when Treasuries didn't.

The extent to which this countervailing bund rally is driven

by transatlantic repatriation is unknowable, but what can be

safely assumed is that any returning European money won't

necessarily go back to European equities, not yet at least.

So the bund market seems like the logical option. Indeed,

there appear to be few doubts that the country is 'money good'

even if its debt/GDP ratio is set to rise. Just look at the rock

bottom German sovereign credit default swap pricing and the

benign reactions of credit rating firms to the German fiscal

stimulus.

"German Bunds offer better value as a safe haven with yields

still elevated after the recent shift in fiscal policy," HSBC's

global head of fixed income Steve Major told clients.

Major argues that if the ECB were to cut rates by more than

forward markets now imply, bund yields have significant scope to

fall across the curve and "are a good alternative safety play to

US Treasuries".

While the modest size of the German bond market may mean it

would have more difficulty absorbing a headlong dash for safety

compared to the huge Treasury market, the supply of bunds is

rising and there are higher yielding alternatives in the well

supplied government debt markets of its euro zone partners.

Ultimately, the prospect of Germany, and Europe more

generally, becoming a comfortable home for funds seeking safe

assets has profound implications for the euro and dollar's

respective roles in sovereign currency reserves.

The return to Europe has taken on many forms this year. But

the retreat to its debt havens may be one of the more

meaningful.

Chart of the day

With the US-China trade war escalating despite the broader

tariff pause, China's latest consumer price report shows the

country was still in deflationary mode in March, in stark

contrast to the still above-target U.S. CPI inflation.

Given the speed and scale of the tit-for-tat tariffs being

levelled from each side, the growth and inflation fallout for

both countries has become pure guesswork.

The March figures for U.S. inflation are due late on

Thursday. U.S. CPI inflation is expected to have eased to 2.6%

last month from 2.8% in February, but none of this will yet

capture the potential impact of the ever-evolving tariff

plans.

Today's events to watch

* U.S. March consumer price inflation, weekly jobless claims

* Kansas City Federal Reserve President Jeffrey Schmid,

Boston Fed President Susan Collins, Philadelphia Fed President

Patrick Harker, Dallas Fed boss Lorie Logan, Chicago Fed chief

Austan Goolsbee and Richmond Fed chief Thomas Barkin all speak;

Bank of England Deputy Governor Sarah Breeden speaks

* Senate Banking Committee holds hearing on nomination of

Michelle Bowman to Federal Reserve vice chair for supervision

* Spanish Prime Minister Pedro Sanchez will visit China

* US corporate earnings: Carmax

* US Treasury sells $22 billion of 30-year bonds

Opinions expressed are those of the author. They do not reflect

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