(Opinions expressed are those of the author, a columnist for

Reuters.)

By Mike Dolan

LONDON, March 25 (Reuters) - What matters in U.S. and

global markets today

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

Markets

Wall Street stocks jumped on Monday, spurred by hopes that the

White House is hesitating in its plan for sweeping "reciprocal"

tariff hikes next week. The rally was also helped along by news

that S&P Global's flash U.S. business survey for March showed

overall corporate activity well above forecasts, calming fears

about a brewing tariff-related downturn. But under the hood, the

survey results were perhaps less impressive than they seemed.

I'll discuss this below and then explore why declining U.S.

private sector debt may not be such a good thing.

Today's Market Minute

* U.S. President Donald Trump said on Monday that automobile

tariffs are coming soon even as he indicated that not all of his

threatened levies would be imposed on April 2 and that some

countries may get breaks.

* Trump on Monday issued an executive order declaring that any

country buying oil or gas from Venezuela will pay a 25% tariff

on trades with the U.S., while his administration extended a

deadline for U.S. producer Chevron ( CVX ) to wind down operations in

the South American country.

* Atlanta Federal Reserve President Raphael Bostic said he

anticipates slower progress on inflation in the coming months

and thus now sees the Fed cutting its benchmark interest rate

only once more by the end of this year.

* India is open to cutting tariffs on more than half of U.S.

imports worth $23 billion in the first phase of a trade deal the

two nations are negotiating, two government sources said.

* Top Trump administration officials mistakenly disclosed war

plans in a messaging group that included a journalist shortly

before the U.S. attacked Yemen's Iran-aligned Houthis, the White

House said on Monday.

Reality check on household confidence

While S&P Global showed that the dominant U.S. service sector

has rebounded much faster than expected, U.S. manufacturing,

which is more vulnerable to tariff hikes, surprised by slipping

back into contractionary territory this month.

Investors will now turn their attention to the household

sector on Tuesday to see if the Conference Board's consumer

confidence reading shows any sign of recovery this month from

February's eight-month low.

As to the seemingly endless "will they, won't they" guessing

game on tariffs, President Trump said on Monday that auto

tariffs are coming soon. But he added that not all of his

threatened levies will be imposed on April 2 and some countries

may get breaks.

The upshot for stock markets was that the S&P 500 rose

almost 2% on Monday to end at its highest point in over two

weeks, led by Big Tech, including chip giant Nvidia ( NVDA ) and

Elon Musk's Tesla, which enjoyed a 12% surge.

Wall Street futures slipped back in the red first

thing on Tuesday. But much of this week's trading will likely be

influenced by the end of the first quarter on Friday. To the

extent that the recent plunge in stocks drew short sellers,

there may be some degree of short covering to close out the

month.

Overseas stocks were mixed, with a 2% drop in Hong Kong

but a 0.5% gain for euro zone stocks, as the Ifo

Institute's gauge of German business confidence climbed.

The dollar was largely subdued, falling back against

the yen and yuan.

Treasuries were influenced by the stock market

moves and positive business polls, as 10-year yields hit their

highest in a month early on Tuesday.

Adding a spur to that move was a rise in crude prices to

three-week highs on Trump's push for tariffs on countries

buying Venezuelan crude and on comments from Atlanta Federal

Reserve boss Raphael Bostic that he sees just one rate cut

coming from the Fed this year.

And now I'll turn to a few reasons why the Fed may cut interest

rates more than Bostic and the markets are currently expecting.

US debt reduction may become a drag, not a brag

The rude health of U.S. household and corporate balance

sheets is partially responsible for the exceptional resilience

of the U.S. economy in recent years - but U.S. de-leveraging may

start to become a drag that could amplify recession risk.

This month's release of the Federal Reserve's quarterly

statistics on U.S. financial accounts highlighted the rising

asset wealth and modest debt load of households and businesses

at the end of 2024.

But when you strip away the impact of the ongoing expansion of

the federal government's mountainous debt pile, a potentially

pernicious trend emerges - or so says Morgan Stanley's Matthew

Hornbach and the firm's U.S. fixed-income team.

Slicing and dicing the data, they reckon the U.S. private

sector debt load shrank by 2.4% of gross domestic product in the

final three months of last year - the steepest de-leveraging of

the private sector since the banking crash of 2008.

The last period of equivalent quarterly debt declines was in

the second quarter of 2023 after the regional banking crisis,

the team noted, but that was much more modest and reduced

leverage in the financial sector accounted for the entire drop.

The drivers of the debt rundown today are all in the

non-financial parts of the economy: households, non-financial

businesses, and state and local governments. And that's the

first time on record that all three segments reduced leverage in

the same quarter.

The catalyst may have been trepidation surrounding November's

U.S. election and Trump's return to the White House. But there's

good reason to believe the trend has not improved much in early

2025, given subsequent developments including trade uncertainty,

planned reciprocal U.S. tariff hikes and related stock market

volatility.

"We suspect that the trade tensions arising after the

presidential inauguration may limit any rebound - as evidenced

by subdued capital market activity," Morgan Stanley told

clients.

"A sustained pullback in private sector debt growth could

present a challenge for the U.S. economy," it added. "At a

minimum, a sustained private sector de-leveraging would not be

emblematic of a normally functioning U.S. economy."

The upshot is that the Federal Reserve may be more ready to ease

monetary policy than many assume and may be willing to go

further than market pricing suggests, making today's elevated

Treasury yields look attractive.

PUT DOWN

JPMorgan's team also believes the likelihood of further

substantial Fed easing long term may be underestimated as the

bank now sees the chance of a U.S. recession over the next 12

months as high as 40%.

The JPM strategists question the market's assumption of a

so-called "Trump put" with a higher strike price than the

long-assumed "Fed put".

In other words, many investors thought a stock market swoon

on the scale of the one seen so far this year would have caused

the new administration to reverse some of its more disruptive

plans. But that assumption seems wide of the mark.

JPM's analysts reckon the government is digging its heels in

by signaling an inevitable "adjustment phase" for the economy

and markets.

"The damage from sentiment as a result of extreme policies

could trigger more Fed easing than in our baseline, especially

if the U.S. labor market weakens," it added. "The path remains

narrow with limited room for errors, but the strike of the Fed

put could be higher than the one of the Trump put."

All this talk of backstops is one reason why the stock

market seems keen to bounce as the dire first quarter comes to a

close. After all, many in the market may still believe in those

"puts" - and the temptation to "buy the dip" is well entrenched

in market psychology.

Two big problems remain, though.

One is that U.S. equity and corporate debt markets are

nowhere close to pricing in heightened recession risk.

High-yield corporate debt spreads are still far too slim to

account for any danger ahead.

The other is the chance that neither of the two mooted

"puts" materialises at all.

Chart of the day

The University of Michigan consumer sentiment reading for

March dropped to its lowest level in more than two years,

suggesting that U.S. households may be anxious about the

turbulent mix of trade shifts and federal job cuts alongside

heightened stock market volatility. The Conference Board's

equivalent survey for this month released on Tuesday could offer

a reality check, with its sentiment indicator already at an

eight-month low in February.

Today's events to watch

* U.S. March consumer confidence, March Richmond Federal

Reserve business survey, February U.S. new home sales, January

U.S. house prices

* Federal Reserve Board Governor Adriana Kugler and New York

Fed President John Williams speak

* U.S. Treasury sells $69 billion of 2-year notes

* U.S. Secretary of State Marco Rubio to meet Turkish

foreign minister Hakan Fidan in Washington

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.