ORLANDO, Florida, March 17 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

Global equity markets on Monday kept up the positive momentum

initiated by Friday's rebound, as investors parked their

concerns over escalating global trade tensions and hoovered up

cheap and beaten down stocks.

Many short-term positioning and momentum indicators suggest

Wall Street was oversold, so in that light a continuation of the

recovery is understandable. Chances for a truce in the

Ukraine-Russia war, slender as they may be, are also lending

some support to risky assets at the margins.

But there are plenty of reasons to be wary of chasing this

bounce too aggressively - Monday saw the release of yet another

surprisingly weak U.S. retail sales report, and the White House

confirmed President Donald Trump's previous pledge that

reciprocal tariffs will come into effect on April 2.

Today's Key Market Moves.

* The MSCI All-Country World Index rises for a second day,

its

first back-to-back gains in a month. Benchmark European and

Asian indices rise 1% or more.

* Wall Street's three main indices rise between 0.3% and

0.9% as

investors continue to 'buy the dip'. This pulls the S&P 500

further away from its recent 'correction'.

* All but one of the S&P 500's 10 sectors rise, and that is

consumer cyclicals. A rise in crude oil futures helped lift

energy stocks 1.6%, after the U.S. vowed to keep attacking

Yemen's Houthis until the group ends assaults on shipping.

* 40-year Japanese Government Bond yields hit a new high of

2.95%,

rising for the 13th day out of the last 14, and steepening the

JGB curve.

* Gold rises 0.5% on the day to keep a grip on the $3,000

and

ounce mark, supported by weak U.S. economic data and falling

dollar.

* Rising stocks and a lower dollar and Treasury yields mean

U.S.

financial conditions loosen for a second day, further lowering

Goldman Sachs's financial conditions index from Thursday's

10-month high.

But impressive as the global rebound has been over the last

two trading days - more than 3% in both the S&P 500 and MSCI

World Index - it's a brave person to call this a definitive

turn.

There's simply too much uncertainty and too little

visibility around Trump's trade war for that. And the U.S.

economic data continues to soften - Citi's U.S. economic

surprises index has been in negative territory since February 20

and is languishing near its lowest level since September.

The outlook for other major economies, notably China and

Europe, is brighter.

February's 'data dump' from China was mixed but did include

strong retail sales figures, and Beijing has made spurring

domestic consumption a priority. Meanwhile Germany's plans to

open the fiscal taps are a huge boost to Europe's growth

prospects.

The picture in Japan is in many ways more fascinating. The

Bank of Japan is keen to continue normalizing policy after

decades of ultra-low and negative interest rates, a stance that

is justified by the rapid pace of wage growth.

According to Jeff Weniger, head of equities at WisdomTree,

Japanese wages are now outstripping U.S. wages at the fastest

rate in decades. Long-term Japanese Government Bond yields are

printing new multi-year highs almost on a daily basis - the

40-year JGB yield is fast approaching 3%, and on Monday rose for

a 13th day out of the last 14.

But higher borrowing costs, global market turbulence and

trade war uncertainties are being felt - Japan's economic

surprises index on Monday fell to the lowest since January.

The BOJ is unlikely to raise interest rates again later this

week, and money markets are pricing in a 25 basis point move in

June or July.

In the U.S., consumers may also be feeling squeezed, not by

rising borrowing costs, but by falling asset prices.

Houston, we have an asset problem, not a debt problem

It's widely believed that the biggest issue with U.S. consumers'

balance sheets is indebtedness, but the Federal Reserve's latest

financial accounts - and the volatile stock market - suggest

that larger risks may be on the other side of the ledger.

This seems counterintuitive. Household wealth has never been

higher, rising some $163 billion in the fourth quarter of last

year to a record net $169.4 trillion, as gains in stocks and

'other' assets more than offset declines in bonds and home

prices, according to the Fed's latest report.

And when looking at assets as a share of gross disposable

income, considered a more accurate barometer of wealth,

households have rarely ever been richer.

But cracks are starting to appear in the edifice.

Households directly or indirectly owned $56 trillion worth

of stocks at the end of last year, a record amount. As a share

of total gross wealth, equity exposure is at a historically high

level, and vulnerable to a significant decline if markets slide.

The market is wobbling. With only two weeks left of the

current quarter, the S&P 500 is heading for a fall of 4% and the

Nasdaq is down 8%. Some $5 trillion has been wiped off the U.S.

stock market in the last month, the sharpest dose of wealth

destruction since the bear market of 2022.

This has potentially profound implications for a

consumption-based economy where the top income decile - the

owners of nearly all of the country's financial assets - is

responsible for roughly half of the nation's consumer spending.

So while it's famously been said that "the stock market is

not the economy," that may not be strictly true.

Oxford Economics' chief U.S. economist Ryan Sweet - one of

many who have recently cut their 2025 growth forecasts - has

warned that household net wealth matters more for the consumer

spending outlook than ever before.

"A stronger wealth effect has proven to be a tailwind for

overall consumer spending, but it could just as easily turn into

an outsize drag in the event of a bear market," he wrote last

week.

HIGH WATER MARK

He's right. One of the most remarkable statistics in recent

years is that the U.S. economy has grown 50% in nominal terms

since the post-pandemic low in 2020, less than five years ago.

Household wealth has played a key role in this via a

virtuous cycle of strong consumer spending, high corporate

profits, soaring stock markets and resilient economic activity.

But what if one part of that cycle - asset prices - has

reached its high-water mark?

What was a virtuous cycle when asset prices were rising

could quickly flip to a vicious cycle when they fall. We may

already be seeing the beginnings of this. Consumer sentiment is

now at a two-and-a-half-year low, University of Michigan surveys

show, and tepid monthly retail sales reports are offering

reasons to be concerned.

ON THE OTHER SIDE

Meanwhile, the other side of the household balance sheet is

actually in relatively good shape.

Total nominal debt fell slightly in the fourth quarter to

$20.79 trillion, the first decline in nearly five years. And if

you exclude a few quarters in the pandemic distorted by

government stimulus checks, debt as a share of gross disposable

income is now the lowest since 1999. Applying the same criteria,

mortgage debt - households' biggest single debt burden - as a

share of GDI is the lowest since 1998.

So overall, debt levels appear relatively low and stable,

while asset values are high and primed for a fall.

What could move markets tomorrow?

* Hong Kong unemployment (February)

* Japan tertiary industry activity index (January)

* Euro zone trade (January)

* Germany ZEW sentiment indicators (March)

* Canada inflation (February)

* U.S. industrial production (February)

* U.S. 20-year Treasury bond auction

* U.S. import & export prices (February)

If you have more time to read today, here are a few articles

I recommend to help you make sense of what happened in markets

today.

1. Europe's fiscal splurge could herald decade-long

bull

market: Klement

2. Dollar stops insulating U.S. stocks: Mike Dolan

3. Fed officials prepare to lay down marker on

impact of

Trump policies

4. Hedge funds regain appetite for US stocks, feel

full of

Europe, Asia

5. Britain's growth risks put bond investors on high

alert

I'd love to hear from you, so please reach out to me with

comments at . You can also follow me at [@ReutersJamie and

@reutersjamie.bsky.social.]

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