ORLANDO, Florida, March 27 (Reuters) -

TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Trump drives global trade war up a gear

Investors went on the defensive Thursday, reducing

exposure to risky assets like stocks after U.S. President Donald

Trump escalated the global trade wars with his plans to slap

aggressive tariffs on auto imports from next week.

There was no uniform flight to safety, however, even though

gold leaped to a new high, as mounting inflation concerns pushed

up Treasury bond yields. My column below shines a light on the

rather surprising resilience shown by currencies of the

countries that will be hit hardest by Trump's auto tariffs.

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.

Today's Key Market Moves

* Gold rises more than 1% to a fresh high of $3,059/oz.

* A late wave of selling ensures Wall Street's big

three

indices end lower. Under the hood there were some bigger moves

in automaker shares, with General Motors ( GM ) down 7.7% and Ford down

3.9%.

* Mexico's peso falls 1% and the Canadian dollar falls 0.3%,

sold

off on the U.S. auto tariff news.

* Longer-dated U.S. Treasury yields rise to the highest in

over a

month - the 10-year yield touches 4.4%, and the 30-year yield

reaches 4.75%.

* 10-year UK gilt yield rises above 4.80% for the first time

since

mid-January, as investors cast a more critical eye on the UK

fiscal outlook post-fiscal statement.

* U.S. copper futures slide 2.2% from the previous day's

record

high of 5.37/lb.

Investors find automotive for caution

Trump's latest tariff salvo drew widespread

international criticism and weighed heavily on global markets on

Thursday.

It's not just tariffs grabbing U.S. equity traders'

attention as the end of the quarter approaches - the S&P 500 is

hovering around a key long-term trend line that technical

analysts say could help determine the market's fate in the

coming weeks and months.

The index is trading just below the 200-day moving average,

having traded above for most of the last two years, during which

time the market rose more than 50%. Failure to leap back above

this technical level will be seen as a bearish sign.

"Nothing good happens below the 200-day moving average," a

quote attributed to billionaire veteran hedge fund manager Paul

Tudor Jones, is getting a lot of play right now.

If the flip side of that is nothing bad happens above the

200-day moving average, look no further than gold, which rose

again to a new high on Thursday. Gold has traded above its

200-day moving average every day since 17 October, 2023, and

appears to be accelerating further above it.

Of course, there's more driving gold higher than just

technicals. Fundamental factors like concerns around inflation,

growth, and geopolitics are fueling demand and driving momentum.

Tariffs and global trade tensions are part of that too.

The uncertainty is also beginning to affect the U.S.

corporate earnings outlook. While figures on Thursday showed

that corporate profits surged to a record high in the fourth

quarter, analysts are lowering their forecasts for this year.

Analysts at Citi estimate that a 10% increase in tariffs

roughly equates to a 5%-6% decline in U.S. earnings per share,

and Barclays analysts this week lowered their S&P 500 base case

EPS estimate to $262 this year from $271.

A lot can change between now and April 3, when the auto

tariffs are set to kick in. Trump could scrap them entirely just

as easily as he could increase them, so the uncertainty and lack

of visibility will likely keep investors on the defensive.

Perhaps one surprising element of Trump's auto tariffs is

how well the currencies of the key targeted countries have stood

up. Can this resilience last?

Auto tariff FX pain is hitting close to home

While auto company shares around the world are wilting

following U.S. President Donald Trump's decision to slap

aggressive tariffs on imported cars, the currencies of the

most-affected countries are holding up surprisingly well.

Trump said on Wednesday that a 25% tariff on imported

vehicles will take effect on April 3. There will be some delays

and exemptions, of course, but this could potentially add

another $55 billion to the cost of finished vehicles.

The United States imported $220 billion of finished cars and

vehicles last year, of which 22% came from Mexico, 18% from

Japan, 17% from Korea, 13% from Canada and 11% from Germany.

Imports of all auto products totaled $474 billion.

Given these figures, the reaction of equity markets on

Thursday was unsurprising: shares of South Korea's Hyundai fell

4.3%, roughly three times more than the broader KOSPI's loss,

and some $16 billion was wiped off Japan's transport index.

German auto shares fell too, extending their losses to 10%

over the last three weeks, a period in which the broader DAX has

flat lined. Analysts at Morgan Stanley expect shares in "all

exposed" European auto companies to fall a further 5-7% in the

near term.

But the FX market's reaction was mixed. The Mexican peso

fell 1%, and both the yen and Canadian dollar slipped around

0.3%. But the euro and South Korean won rose 0.3%.

Indeed, the currencies of the four largest auto-exporters to

the U.S. - Mexico, Japan, Canada and South Korea - are all

stronger against the U.S. dollar so far this year. And with the

exception of the Korean won, they are also all up since Trump's

inauguration on January 20.

The euro is obviously a special case because it is shared by

20 countries and has been propelled higher in recent weeks by

Germany's fiscal pivot. Regardless, the euro is also firmer

against the greenback this year.

On the face of it, this is a head-scratcher. The hit to

these economies will be significant if the proposed tariffs are

fully implemented and kept in place for some time.

But zoom out a little further, and a clearer picture

emerges: one of U.S. dollar weakness.

A DOLLAR STORY

While the 'Tariff Man's' protectionist trade agenda could

have positive benefits for the U.S. economy over the long term,

the short-term impact is clearly negative. The tariff talk is

damaging U.S. consumer and business confidence, and market

sentiment, much more than these threats are hurting other

economies.

And U.S. consumers have reason to be skittish.

Morgan Stanley estimates that, all else being equal, the 25%

tariff on auto imports equates to a price increase of more than

$90 billion across the industry, or nearly $6,000 per unit on

average. Arthur Wheaton, director at Cornell's School of

Industrial and Labor Relations, reckons vehicle prices could

shoot up by as much as $20,000.

For a country that uses and loves cars as much as America,

that would be extremely painful.

Trump's tariffs also appear to be one reason overseas

investors are reassessing their U.S. assets. Foreign investors

are reducing exposure to Uncle Sam for economic, political and

valuation reasons. And non-dollar currencies are benefiting in

turn.

"It's mostly a capital flight story. The tariffs are bad for

Canada, Mexico and other countries, but investors are also

fleeing U.S. assets," says Brent Donnelly, president of trading

and analytics firm Spectra Markets.

The auto exporters' currencies aren't immune to the

escalating trade war. The Canadian dollar slumped to a

four-and-a-half-year low last month, and the peso could well

come under more pressure due to the auto sector's relatively

large footprint in Mexico's economy.

But right now, the currency feeling the whiplash most from

Trump's tariffs may be the U.S. dollar.

What could move markets tomorrow?

* Japan Tokyo inflation (March)

* U.S. PCE inflation (February)

* UK retail sales (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. US auto tariffs shake global industry as price

hikes,

job losses loom

2. High-water mark for scary US investment deficit?:

Mike

Dolan

3. UK bond chief hails 'important shift' away from

long-dated issuance

4. Canadian crude exporters are unintended

recipients of

Trump bump: Bousso

5. Economic turbulence shakes US airlines as travel

demand

falters

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.

Trading Day is also sent by email every weekday morning.

Think your friend or colleague should know about us? Forward

this newsletter to them. They can also sign up here.