LONDON, April 8 (Reuters) - What matters in U.S. and

global markets today

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

Markets

After a wild Monday, equity trading appears to have calmed

somewhat even as the U.S.-inspired trade war ratchets up.

Speculation about a devaluation of China's yuan has moved center

stage along with a snapback in U.S. Treasury yields.

Today's Market Minute

* China refused to bow to what it called "blackmail"

from the United States as a global trade war ignited by

President Donald Trump's sweeping tariffs showed little sign of

abating on Tuesday.

* The U.S. dollar fell on Tuesday while the euro rallied as

stocks rebounded in Asia and Europe on hopes that U.S. will

enter negotiations over his sweeping tariffs that have roiled

markets for three days.

* The European Commission said on Monday it had offered a

"zero-for-zero" tariff deal to avert a trade war with the U.S.

as EU ministers agreed to prioritize negotiations, while

striking back with 25% tariffs on some U.S. imports.

* Gold's latest gallop to all-time highs has drawn

comparisons with the last time political and economic turmoil

were the main drivers of record prices, back in 1980. But market

players say the nature of this rally - and potentially its

ability to endure - look different.

* The United States is starting to resemble an emerging

market more than a developed country, the head of pan-European

stock exchange operator Euronext said on Tuesday.

Stocks take a breath, but yuan, Treasuries convulse

Highlighting just how fragile market sentiment currently

is, Monday's 5-7% intraday swings in Wall Street's stock indexes

were largely driven by a rogue news headline about a pause in

tariffs that was quickly denied. This also reflected how much

speculative short selling appears to have built up over the past

week, exaggerating the withering downswing.

In the end, the S&P 500 closed only marginally lower

on the day, though it's still off more than 10% since last

Wednesday's tariff announcement.

Gasping for breath after a torrid week, stock futures

and world bourses all staged a modest bounce on Tuesday, with

Japan's Nikkei emitting the biggest sigh of relief with

a 6% rally.

Tokyo outperformed after President Donald Trump said Japan

was sending a trade negotiating team to America and U.S.

Treasury Secretary Scott Bessent said he expects Japan to get

"priority" treatment. Japan's Prime Minister Shigeru Ishiba said

separately he told Trump to rethink tariff policies.

Meanwhile, China refused to back down on its retaliatory

tariffs, prompting Trump to threaten raising U.S. import levies

on Chinese goods to more than 100%.

On Tuesday, China's commerce ministry said it would not bow

to U.S. "blackmailing" and that "China will fight to the end."

As if to up the ante, China's yuan fell to its

weakest level since 2023 on Tuesday after the central bank

slightly loosened its grip on the currency in what appeared to

be an attempt to counteract the tariff blow to exports.

During Trump's first trade war with China, Beijing

effectively devalued the yuan by about 10%, offsetting much of

the tariff hit on Chinese exporters.

If it were to replicate a similar move in the current

standoff, it would undermine one of the stated aims of the Trump

campaign: pushing down on what they see as an overvalued dollar.

Japan's former top currency diplomat Naoyuki Shinohara said

on Tuesday that any U.S. attempt to pull off a 1985 Plaza

Accord-style coordinated depreciation of the dollar won't work

as it would require the consent of China and Europe.

The dollar is starting to creep higher across the

board. And, with the help of official buying, Chinese stocks

rallied too.

This all raises the question of whether China's huge

holdings of U.S. debt could become a weapon in the escalating

game of chicken between Beijing and Washington.

Turning to that market, Treasuries - facing a heavy week of

new debt sales this week - recoiled violently on Monday, with

10-year yields retracing all their decline since Wednesday's

tariff statement.

Whether that was due to hawkish Federal Reserve soundings or

China selling concerns is unclear. The big move also exacerbated

long-standing anxieties about hedge fund exposure to the

so-called 'basis trade' in Treasuries - essentially an arbitrage

between cash and futures positions - that is worth hundreds of

billions of dollars.

The problem is that this trade relies on relatively low

volatility and the past week certainly didn't have that, with

the MOVE index of Treasury volatility hitting its

highest since October 2023.

All this makes the war of words between Trump and Fed boss

Jerome Powell all the more important, which I discuss in my

column today.

Chart of the day

Investors are watching the U.S. credit market like a hawk,

fearful that high volatility in 'junk' bond pricing could cause

financing to tighten up broadly. High-yield corporate debt

spreads have risen to near two-year highs at 461

basis points. True, that is still shy of the alarm zone above

500 bps, but the asset class's volatility gauge has

zoomed to its highest since 2022, when the Fed was rapidly

hiking borrowing costs. So the big question now is whether this

soaring volatility - which is nearing pandemic levels - could

effectively shut down the entire market.

Today's events to watch

* U.S. March NFIB small business survey

* San Francisco Federal Reserve President Mary Daly speaks;

European Central Bank board member Piero Cipollone speaks; Bank

of England Deputy Governor Clare Lombardelli speaks

* U.S. corporate earnings: Walgreens Boots Alliance ( WBA )

* US Treasury sells $58 billion of 3-year notes

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)