LONDON, March 24 (Reuters) - What matters in U.S. and

global markets today

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

Markets

The final week of a bruising quarter for U.S. stocks looks set

to start on an upbeat note amid signs of equivocation in

Washington on its long-threatened April 2 tariff hikes.

Anxiety over a looming trade war has been one of the biggest

drags on stocks all year, so weekend reports suggesting next

week's moves may exclude a set of sector-specific tariffs gave

stock futures a lift ahead of Monday's bell.

Today's deep dive looks at how a breakdown in security

relations between Washington and the European Union may cause

global reserve managers to reexamine their currency of choice.

Find this and more market analysis below.

Today's Market Minute

* U.S. President Donald Trump's administration is likely to

exclude a set of sector-specific tariffs when applying

reciprocal levies on April 2, Bloomberg News and the Wall Street

Journal reported, citing officials.

* New Canadian Prime Minister Mark Carney on Sunday called a

snap election for April 28, saying he needed a strong mandate to

deal with the threat posed by U.S. President Donald Trump, who

"wants to break us so America can own us."

* China sought to reassure foreign corporate chiefs of the

country's business potential when Vice Premier He Lifeng met

with the heads of Apple, Pfizer, Mastercard, Cargill and others

on Sunday.

*A U.S. delegation will seek to make progress toward a Black Sea

ceasefire and a broader cessation of violence in the war in

Ukraine when it meets for talks with Russian officials on

Monday.

* Britain will stick to its fiscal rules despite global

upheaval, finance minister Rachel Reeves said on Sunday, raising

the prospect of thousands of public sector job cuts.

Tariff exclusion hopes prop up markets

President Donald Trump said last month that he intended to

impose auto tariffs "in the neighborhood of 25%" and similar

duties on semiconductors and pharmaceutical imports, but he

later agreed to delay some auto tariffs after a push by the

three largest U.S. automakers for a waiver.

Reports suggest other exclusions are now in the pipeline,

although the final design of the measures remains highly

uncertain.

S&P 500 futures were up about 1% on Monday, looking

to cut losses in the index, which was on course for its worst

quarter in almost three years and its worst first quarter since

the pandemic hit in 2020.

European and Chinese stocks were higher

too as a result of the tariff reports.

Treasury yields also rose, in part due to the

rebound in stock futures, as markets wait for the U.S. personal

consumption expenditures gauge due on Friday.

As has been the case for the past few weeks, the dollar

went the opposite direction against the euro but

nudged higher against Japan's yen and China's yuan

.

The euro was enlivened by flash March business surveys that

showed regional business activity growing at its fastest pace in

seven months as a long-running manufacturing downturn eased and

hopes rose for a German fiscal boost.

The U.S. equivalent from S&P Global is due out later.

In emerging markets, the focus remained on Turkey after courts

on Sunday jailed Istanbul Mayor Ekrem Imamoglu, President Tayyip

Erdogan's main political rival, pending trial for corruption

charges. The move sparked the country's biggest protests in more

than a decade.

Turkish stocks stabilised, however, rising 3% to claw back

some of the previous week's hefty losses as the capital markets

board banned short selling. The lira held steady after

last week's swoon, which was met by central bank intervention

and a two percentage point interest rate rise.

Let's stay on geopolitics but move back to the U.S. and

consider how splintering Transatlantic ties could eventually

alter the make-up of the world's reserve holdings.

Transatlantic rift might spur euro reserve holdings

If military and diplomatic alliances help determine where

countries bank hard currency reserves, the fraying of

transatlantic ties raises big questions about the future balance

between global dollar and euro holdings.

Perennial doubts about the dollar's long-dominant world reserve

status are back in the spotlight as President Donald Trump's

administration sets about rewiring America's trade and military

ties.

While the discussion about geopolitics and reserve holdings

has usually centered on major developing countries, such as

China, little consideration has typically been given to the

accounts of traditional U.S. allies, especially Europe.

The countless studies about the dollar's role as the world's

reserve currency almost always conclude that the greenback -

which still commands 57% of known global central bank reserves -

is unlikely to be unseated any time soon.

The reasoning is usually that dollar alternatives lack

markets with the same size, transparency and liquidity as the

U.S. And the pervasive presence of the dollar in global offshore

centers and in world trade invoicing further entrench its use.

But a 2022 paper from Federal Reserve Board economist Colin

Weiss - examining the impact on dollar holdings of the decision

to freeze Russia's assets after it invaded Ukraine - homed in on

the fact that roughly three-quarters of foreign official

holdings of U.S. assets are with countries that have military

ties to Washington.

"While U.S. dollar reserves are no longer exclusively held

by political allies reliant on U.S. military support, as they

were from the 1960s through the 1980s, these countries are still

the most important set of reserve holders."

Weiss broke down the countries between those with formal

military alliances with the U.S., those with informal ones

involving arms agreements or joint exercises with the U.S.

military, and those with specific economic and financial ties

such as dollar currency pegs.

He suggests that in scenarios involving highly fractious

geopolitics, the risk of dollar reserve divestment represents

about $800 billion - or just over 6% of the dollar's share of

total reserve holdings.

"Even a geopolitically-motivated move away from the U.S.

dollar in trade invoicing would only diminish the dollar's role

as a reserve currency and not destroy it," he concludes.

RESERVES AND COERCION

But this study was done long before this year's dramatic

splintering of transatlantic relations over the Russia-Ukraine

conflict, which has prompted a significant rethink of Europe's

defence relationship with Washington and led to a re-armament

push across the entire continent.

Germany's gigantic defense and fiscal reboot this month is

well-documented, and increases in defense spending across the

European Union both at a national and central EU level are under

way - even if replacing the U.S. will likely take years.

The Financial Times reported last week that Europe's big

military powers are drawing up plans to take over responsibility

for the continent's defence from the U.S. through a managed

transfer spanning five to 10 years.

That shifting landscape raises questions about how European

allies will view their dollar reserve holdings going forward -

or indeed their exposure to the dollar payment systems more

generally in light of U.S. retrenchment.

And if Europe's combined military clout eventually assumes

some of the characteristics of the U.S.' current military power,

might that not affect where reserve holdings around the world

are located too?

Pointedly last week, European Central Bank chief economist

Philip Lane said Europe's dependence on American payment

providers left it open to "economic pressure and coercion,"

outlining risks in deteriorating transatlantic relations.

"We are witnessing a global shift towards a more multipolar

monetary system, with payments systems and currencies

increasingly wielded as instruments of geopolitical influence,"

he said, adding that the development of a "digital euro" was one

promising option.

The euro's 20% share of world reserves remains the

second-largest, by some distance, and the percentage has

remained fairly constant at this level for the past 10 years,

even as the dollar's share has fallen by seven percentage points

over the decade.

While there has been much debate about the potential rise of

the Chinese yuan's tiny 2% share of world reserves, the prospect

of greater euro use has often been dismissed - in part due to

concerns about the fragmented underlying debt markets and

incomplete aspects of the euro currency and banking unions.

But the expected expansion of European public debt and

likely boost to joint EU borrowing may help meet some of the

demand for top-rated "safe" assets from regional and overseas

reserve managers.

In a world where Washington's international relations are

increasingly unpredictable and its trade and economic policies

more inward-looking, the second-largest reserve asset may well

find itself gaining ground on the longtime frontrunner.

Chart of the day

The Trump administration is soon due to implement reciprocal

tariffs on countries with which the United States has large

trade deficits or places where it faces high tariffs and

non-tariffs barriers. This chart shows how those deficits stack

up. The latest news reports say the April 2 moves are likely to

exclude a set of sector-specific tariffs, though the details of

next week's moves remain sketchy.

Today's events to watch

* US March flash business surveys from S&P Global, Chicago

Federal Reserve February business survey

* Federal Reserve Board Governor Michael Barr speaks; Bank

of England Governor Andrew Bailey speaks

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

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