(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Mike Dolan

LONDON, March 11 (Reuters) - Morning Bid U.S.

What matters in U.S. and global markets today

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

Markets

Wall St's withering stock selloff has now wiped out

virtually all post-election gains and risks turning into a

momentum-driven rout unless there's some change in the darkening

economic picture or the uncertain U.S. government trade policy

stance.

While watching this jarring picture unfold in U.S. markets,

I'm taking a look today at the European defense spending reboot

and the extent to which it may seed another round of joint

borrowing by European Union countries.

Find this and more on the Wall Street rout below.

Today's Market Minute

* President Donald Trump's tariffs have spooked investors,

with

fears of an economic downturn driving a stock market sell-off

that has wiped out $4 trillion from the S&P 500's peak last

month.

* A key economic adviser to President Donald Trump on Monday

pushed back on talk of recession stemming from uncertainty

around his administration's tariff policies, even as a survey of

American households showed consumers growing more pessimistic

about their prospects.

* Germany's Greens vowed to block plans for a massive

increase in

state borrowing to revamp Germany's military and revive growth,

but they also forwarded rival proposals on Monday in a bid for

compromise.

* Ukraine President Volodymyr Zelenskiy met with Saudi Crown

Prince Mohammed bin Salman ahead of talks between Ukrainian and

U.S. officials that Washington hopes will deliver substantial

progress toward ending Russia's war with Ukraine.

* U.S. President Donald Trump aims to build metals refining

facilities on Pentagon military bases as part of his plan to

boost domestic production of critical minerals and offset

China's control of the sector, two senior administration

officials told Reuters.

The market's epic swoon

The milestones in the U.S. market reversal piled up on

Monday.

The S&P 500's 2.7% plunge marked its worst day of the

year, as it closed below its 200-day moving average for the

first time since 2023. 'Big Tech' mega caps were battered, and

the tech-heavy Nasdaq clocked a 4% loss for the first

time since 2022. The VIX 'fear index' of volatility hit

its highest point since the yen-inspired explosion last August.

In single stock moves, Tesla's 15% drop stood out.

The auto giant has now lost more than 50% of its value since it

peaked in December.

Perhaps as worrying as the moves in equities was the

disturbance in the credit market, with borrowing premia on

high-yield U.S. corporate bonds rising to the widest

level versus U.S. Treasuries since September.

There was no clear fresh trigger behind Monday's slide apart

from ongoing trade tariff uncertainty and the softening jobs

market, with President Donald Trump and administration officials

acknowledging that an economic downturn was a risk in the first

quarter.

The New York Federal Reserve's latest consumer survey

highlighted growing concerns about deteriorating household

financial situations. And the percentage of those expecting

unemployment to be higher a year from now rose to its highest

level since September 2023.

Even though the Fed has made it clear that interest rates

are on hold for the foreseeable future, a dash for safety in

Treasuries saw two year yields hit their lowest point

since October, and traders nudged 2025 Fed easing bets up to 85

basis points.

The dollar also slipped again on Tuesday to another

2025 low.

As major investment banks downgraded previously 'overweight'

U.S. equity recommendations, anxiety spread around the world.

The MSCI's all-country stock index is now

negative for the year, too.

However, stock futures and overseas bourses

steadied early on Tuesday with small gains.

Let's now take deeper look at some potentially game-changing

shifts happening in Europe.

The dawn of euro defence bonds?

The European Union's latest joint borrowing plan is likely

just a fraction of what will be needed to defend the continent,

causing some to ask whether the dawn of defence bonds will be

the next big expansion of EU-wide borrowing.

For global investors seeking to rebalance their investment

portfolios beyond an increasingly isolationist United States,

development of a liquid AAA-rated supranational sovereign debt

pool in Europe is now intriguing.

Further development of joint EU borrowing beyond the novel

post-pandemic "Next Generation" recovery funds - earmarked to be

just over 800 billion euros ($866.88 billion) in total - would

push the size of this pool far beyond 1 trillion euros, near the

scale of domestic government debt heavyweights in Germany, Italy

and France.

European leaders last week backed plans to spend more on

defence and stand by Ukraine in a world upended by President

Donald Trump's reshaping of U.S. military and trade alliances.

But the proposed 150 billion euros of jointly borrowed EU loans

seemed shy of estimates for what would be needed in common

funding.

"Von der Leyen's 150 billion euros in loans are a first step

but unlikely to be enough," said Carsten Nickel, deputy research

director at advisory firm Teneo, referring to European

Commission President Ursula von der Leyen.

Nickel reckons parallel loosening of euro budget rules to

allow greater defence spending would only get the continent so

far, as military spending would still be competing with other

domestic priorities.

What's more, Eastern European countries might baulk at

having to shoulder greater defence responsibilities to protect

the whole bloc solely due to their proximity to Russia. They

might therefore demand joint funding to share the burden.

Joint borrowing could also be the cheaper path. Although

benchmark AAA yields on existing 10-year EU-wide debt climbed

over the past week to more than 3.1%, the cost of EU-backed

funds remains lower than in the majority of the EU, aside from

Germany, the Netherlands and the Nordic EU countries.

NUCLEAR UMBRELLA

Intriguingly, Nickel also connects the pressure for shared

EU defence spending with France's proposal last week to provide

a "nuclear umbrella" for EU security.

"French nuclear protection would likely come at a financial

and political cost for its beneficiaries, especially Germany,"

he wrote. "This could hand (French President Emmanuel) Macron

the opportunity to demand joint EU borrowing in return, at the

very least for military purposes - a major political win that

might also sell well at home."

This move could also provide the new German government the

cover it needs to cast aside any remaining objections to joint

borrowing. And if the urgency displayed in Berlin last week to

up its own defence budget is any indication, another sizeable

expansion of joint EU bonds may well be in the works.

Just how much is the only real question.

The EU sees 500 billion euros of investments as needed over

the next decade. But raising defence spending to 3% of output

would require nearly 200 billion euros per year on top of that.

The Bruegel think tank in Brussels reckons the new reality

means an increase in annual defence spending by 250 billion

euros to some 3.5% of GDP in the short term, and they suggested

half be funded at the EU level. That would see around 625

billion of new jointly-issued EU bonds sold by 2030.

The Centre for European Reform said last month that bond

issuance for defence was feasible and had many upsides. In

particular, they noted that a 500 billion euro fund at current

yields would generate an annual interest bill of less than 20

billion euros.

"Since everyone would be on the hook to repay the debt, it

could also reduce countries free-riding on the defense

capabilities of rapidly ramping-up peers like Poland," it said.

What's more, European debt piles, on aggregate, are far

lower than those in the United States and Japan, so the

AAA-rating for EU defence bonds may look more secure.

The expansion of EU joint borrowing could offer solace to

nervy global investors, even as the military imperatives driving

it keep many on edge. And if another round of debt ceiling

wrangling stateside sees the U.S. sovereign rating under renewed

pressure, alternatives may look even more attractive.

Chart of the day

Even though many investors expected Donald Trump's election

win in November to unleash another equity market boom with tax

cuts and deregulation, the megacaps that have led market

skywards over the past few years have now reversed all their

post-election gains. Tesla remains the standout in this regard,

losing more than 50% from its December peak.

Today's events to watch

* U.S. NFIB February small business survey, January JOLTS

job

openings

* European Union finance ministers meet in Brussels, with

European

Central Bank Vice President Luis de Guindos attending

* U.S. 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.

($1 = 0.9228 euros)