LONDON, April 3 (Reuters) - What matters in U.S. and

global markets today

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

Markets

If you thought a global trade war was already priced into world

markets, Thursday's reaction to the U.S. tariff sweep will be

sobering.

I'll get into all the details below and explain why this is just

the beginning of what could be a very difficult ride.

Today's Market Minute

* President Donald Trump's move to impose sweeping tariffs on

U.S. imports from allies and rivals alike sparked threats of

retaliation on Thursday.

* Markets are reeling after the new tariffs sent shockwaves

through the financial world, with the dollar and U.S. stocks

among the hardest hit on fears that a broadening trade war will

unleash a recession.

* "All this work for nothing." Trump's global tariffs are

creating an all-round blockade that is hurting Chinese

businesses, large and small.

* This latest round of tariffs will sap yet more vigor from a

world economy that has barely recovered from the post-pandemic

inflation surge and is weighed down by record-high debt and

unnerved by geopolitical strife.

* He calls it "Liberation Day", but Trump's gamble on global

tariffs could cause political headwinds for his party and

economic pain for his constituents if his promises to recast the

economy do not work out.

Trepidation Day

Some thought Wall Street would embrace the much-hoped for

clarity offered by Trump's tariff announcement, but they were

wrong. Wall Street stock futures have plummeted more than

3% overnight on the combination of a 10% universal tariff on all

U.S. imports and reciprocal tariffs on top of that for many

countries, heavily concentrated in China and Asia. China now

faces a combined 54% tariff rate when factoring in earlier

moves.

European Union imports are set to be hit with 20% tariffs, with

24% planned for Japan and 10% for Britain. Canada and Mexico are

not currently subject to reciprocal tariffs because Trump's

prior 25% fentanyl and immigration-related tariffs will stay in

place.

The moves appear to have been decided using relatively crude

calculations of goods trade deficits with the United States,

something that rankled many investors given the amount of time

taken to construct the plan.

Countries affected around the world said they would now examine

retaliatory measures, with the EU proposing its own tariffs.

There are also reports suggesting the bloc is considering

additional fiscal supports for the worst-affected sectors.

Overall, Deutsche Bank estimates the average tariff rate on

U.S. imports could now rise to 25-30% - the highest in more than

100 years and above most expectations.

Stock and bond markets reflected investor concerns about the

tariffs' potentially damaging impact on U.S. and world growth.

S&P futures were down 3.1% ahead of Thursday's open, with

futures on the Russell 2000 down over 4%, worse than the

2.7% hit in Tokyo and the losses of more than 1% in

Europe and Hong Kong.

The VIX 'fear index' of Wall Street stock volatility

climbed three points to 26, back to levels seen a month ago when

U.S. stocks were falling sharply.

Treasury yields plummeted, with the 10-year down

about 15 basis points to 6-month lows, testing 4% at one point.

But currency moves were less intuitive, with the dollar

tracking Treasury yields to slide to its lowest since

October. It eyed its biggest one-day hit since 2023.

This was somewhat surprising given that tariffs were

expected by many to be more damaging to overseas economies,

which would typically lift the dollar. Several reasons have been

suggested for this move.

One is that the American economy may feel a bigger initial

hit than the rest of the world due to the scale of the new

average U.S. trade barriers, especially if fiscal measures

abroad kick in alongside retaliatory tariffs. That's lifted the

euro.

Another is a dash for the yen's 'safe haven' status.

And Canada's dollar and Mexico's peso also rose on

the assumption that they have escaped the worst-case scenario

for now. China's yuan was weaker, but that was limited by

state bank buying and officials setting the onshore reference

rate higher.

The dollar's losses may also simply be due to the fact that

foreign investors in U.S. assets are resuming their exit from

America's markets, which we saw in the first quarter.

In other news, Tesla's stock overnight lost most of

Wednesday's 5% gains that were based on reports that its boss

Elon Musk would soon step back from his government advisory

role, reports Musk and the White House dismissed.

I'll now turn back to today's main story and discuss why the

much-heralded "Liberation Day" announcement has liberated no one

from uncertainty.

The real tariff uncertainty starts now

Whatever you make of the sweeping tariff plan U.S. President

Donald Trump dropped on Wednesday, remember that the real

uncertainty about the potential economic damage only starts

now.

Relief at getting some clarity on Wednesday was

understandable. But we still have no hard evidence of just how

these measures will directly affect corporate and household

decision-making, or exactly how countries will retaliate.

And Trump's tariff strategy is clearly to keep everyone

guessing about the eventual targets, the size of the levies and

the duration.

Indeed, the White House has already factored in more

uncertainty, with Trump and his officials acknowledging that the

road ahead will be bumpy. So the idea that the fog will all

dissipate in weeks or even months seems hopeful at best.

While there aren't many overarching measures of

"uncertainty" per se, the ones that relate to U.S. trade are off

the charts.

Before Wednesday's big reveal, there was a huge spike in the

U.S. trade component of the Economic Policy Uncertainty Index,

which is based on the news sentiment model devised by Baker,

Bloom and Davis. It is currently reflecting the discombobulation

many CEOs, business leaders and families are feeling when

planning large purchases.

The measure was already at a record high in February,

exceeding the peaks of the first Trump term. But the March

reading saw it more than double over the month - to more than

twice the 2019 peak and almost 30 times the level recorded just

before last November's election.

The market fallout has been slightly less hyperbolic, but

still saw Wall Street's worst start to the year since the

pandemic.

It's possible the trade uncertainty gauge might drop a bit

now that details of Trump's plans have emerged. But so much is

still unknown that it's hard to see the index returning to

normal levels anytime soon.

Because even if you think Trump's goals are a long-term

positive, by wringing trade concessions overseas and returning

factory jobs to America, it could take years to achieve that and

painful adjustments in the interim.

What investors are now trying to do is gauge the immediate

impact, any potentially offsetting U.S. policy actions and the

reactions of governments abroad.

BADLY DRAWN

For many U.S.-based money managers, including long-bruised

'value' investing funds that have enjoyed a rare cheer this

year, not much draws them back to U.S. stocks as Trump pushes

ahead with plans to reorder the global trade landscape.

The latest investment letter from Boston-based GMO's Ben

Inker and John Pease was scathing about the tariff policy.

They remained fretful about the outlook for expensive U.S.

stocks, while showing particular disdain for corporate 'junk'

debt that's still offering historically low risk premia. They

also developed a rule-of-thumb that the dollar should appreciate

by about a third of the overall tariff increases, absent

overseas retaliation.

"While it might seem like the current period of uncertainty

should end quickly once the administration finalizes their

proposals, the poorly designed nature of many of these policies

makes it hard to have confidence that they will last in their

current form," they wrote.

They cited copper tariffs as an example of how the whole

scheme could rebound and potentially crater U.S. returns and

investment without achieving the mooted goals.

"Taking the goal of increased domestic production of copper

as a given, imposing a large tariff on imported copper now seems

an inefficient and costly way to achieve it," they said. Copper

mines take years to develop before they can produce any metal.

In the meantime, all that happens is that the cost of copper in

America rises substantially higher than elsewhere in the world.

They acknowledged that substantial tariffs on copper imports

may incentivize investment in U.S. copper mines, but only if

those tariffs are expected to last. A mine could run for

decades, so uncertainty about the duration of the tariffs will

reduce the incentive to invest today, they said. Another

disincentive would be the risk that a future administration

removes the tariff or perhaps offers subsidies instead.

"A big part of the problem with badly designed policies is

that they are less likely to stick even when enacted with great

fanfare."

Overall, Inker and Pease see rough times ahead for U.S. markets,

arguing that the combined impact of tariffs, a stronger dollar,

and weaker consumption is a net negative for the average U.S.

stock.

"Tariff risk, piled on top of the notoriously high

valuations of U.S. companies, makes the American stock market a

hard pitch," they concluded. "And yet you could do worse. All

you would have to do is buy some U.S. corporate credit."

So much for American exceptionalism.

Chart of the day

The heat map of where the Trump tariff sweep will hit is clearly

hottest in Asia. Not only does China face a combined levy on its

goods of 54% - close to the 60% Trump promised in his election

campaign - but many so-called "China+1" countries, who had

benefited from re-routed Chinese trade to America, are now being

heavily hit as well. Vietnam faces 46% levies, Thailand 36%,

South Korea 25% and India 26%. Importantly, many U.S. firms also

manufacture goods in these countries. For example, Nike produced

50% of its footwear and 28% of its apparel in Vietnam in its

2024 financial year.

Today's events to watch

* U.S. March layoffs, weekly jobless claims, February

international trade balance, March service sector surveys from

ISM and S&P Global; Canada February trade balance

* Federal Reserve Vice Chair Philip Jefferson and Fed Board

Governor Lisa Cook speak; European Central Bank Vice President

Luis de Guindos speaks

* U.S. corporate earnings: Exxon Mobil, Lamb Weston, Conagra

Brands

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

the views of Reuters News, which, under the Trust Principles, is

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