ORLANDO, Florida, March 26 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Nasdaq slumps 2%, tariff fears intensify

It was really only a matter when, not if, tariff fears cast a

pall over Wall Street and global markets again, and so it proved

on Wednesday as investors braced for U.S. President Donald

Trump's latest announcement on auto tariffs.

The Nasdaq fell 2% and the MSCI World index shed 1% for

their biggest declines in two weeks. Earlier, British finance

minister Rachel Reeves delivered an update on the country's

fiscal and economic health, and as I will explore below, it's a

challenging outlook for sterling and UK bonds.

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

* It's a sea of red on Wall Street at the close, led

by

the Nasdaq's 2% slide. Tech is the worst-performing sector in

the S&P 500, losing 2.5%, and with tariff and inflation fears

flaring up, consumer cyclicals lose 1.7%.

* Major tech firms are among the biggest single stock

losers:

Super Micro Computer -9%, Nvidia -5.7% and Tesla -5.6%.

* Sterling is the biggest mover in G10 FX, shedding 0.5%

against

the dollar after UK inflation figures come in weaker than

expected.

* Oil hits a three-week high on U.S. inventory data

and

mounting concern about tighter global supply. Crude futures

climb around 1%, their fifth rise in six days.

* The 'risk off' environment drags emerging market FX lower

across

the board. Investors in Brazil also grapple with rising

political uncertainty after the Supreme Court says it will put

former President Jair Bolsonaro on trial for an alleged coup

attempt.

"Tariff Man" flexes muscles, markets cower

"We're going to go with the tariffs on cars," Trump said on

Wednesday ahead of the formal announcement in the Oval Office

later in the day.

It's a reminder that the self-styled "Tariff Man" isn't

bluffing, or at least appears not to be. If he presses ahead

with these and other tariffs, like the reciprocal ones planned

for April 2, investors face the lousy prospect of faster

inflation and slower growth.

With that April 2 deadline and the quarter-end looming into

view, investors may choose to trim risk exposure and play it

safe. It would be an understandable approach, given current

levels of economic and policy uncertainty.

After some surprisingly high U.S. consumer inflation

expectation surveys recently, it was the turn of UK consumers on

Wednesday. A Citi/YouGov survey showed the public's inflation

expectations rose to 4.2%, the highest in two and a half years.

Consumer inflation expectations are a notoriously poor

barometer for actual inflation outcomes. But policymakers cannot

afford to be complacent, and on Wednesday Bank of Japan Governor

Kazuo Ueda reiterated that interest rates will go up if needed

to prevent rising food prices from fueling broader inflation.

Minneapolis Fed President Neel Kashkari was more measured,

noting the counter forces of low growth and high inflation

should keep the Fed on hold a while longer.

What's increasingly clear is tariffs and trade wars are bad

news for stocks. Early signs from the handful of U.S. companies

that have reported first quarter results show earnings per share

growth has plunged, and on Wednesday Barclays became the latest

brokerage to slash its year-end target for the S&P 500.

Meanwhile, British finance minister Rachel Reeves blamed

swirling global uncertainty for the deteriorating growth

outlook, as the independent fiscal watchdog halved its 2025 GDP

growth forecast to 1%.

It's an increasingly challenging backdrop for holders of UK

assets.

Sterling may be vulnerable to foreigners' gilt trip

The overriding message from British finance minister Rachel

Reeves on Wednesday was simple: the challenges facing UK

policymakers are mushrooming, and their margin for error is

rapidly shrinking.

The UK spring fiscal update made it clear that Britain faces

dismal growth prospects this year and still needs to boost

public borrowing.

This means investors may start demanding higher returns for

lending to the government, or the exchange rate may need to

weaken to draw them in. This raises the risk that a weaker pound

could fuel even greater inflation, creating something of a doom

loop.

So Reeves has to navigate a very challenging environment for

sterling and the UK bond market, to put it mildly.

SHORT-TERM REPRIEVE

Markets got some short-term relief on Wednesday, as the UK

budget update included more spending cuts than had been flagged

and slightly lower debt issuance plans than investors had

expected. But the reality is that UK public finances will be

under heavy strain in the years ahead.

Government borrowing over the next five years is set to be

47.6 billion pounds ($61.4 billion) more than what was expected

only five months ago, according to new forecasts from the

independent Office for Budget Responsibility.

And it doesn't look like growth is coming to the rescue, at

least not any time soon, as the OBR halved its 2025 GDP growth

forecast to just 1%.

On top of this are growing concerns that UK inflation will

rise toward 4% later this year, further above the Bank of

England's 2% target. And then, of course, there is the looming

threat of tariffs from Washington and a global trade war.

Put it all together, and risks to growth in the coming years

are skewed to the downside with no guarantee that borrowing

costs will fall commensurately.

KINDNESS OF STRANGERS

This is hardly the most attractive offering for the overseas

investors who play a critical role in funding Britain's twin

trade and budget deficits.

Official figures show that foreign investors owned 32% of

the British government's 2.08 trillion pound debt pile at the

end of the third quarter last year. That's the biggest share

since 2009 and, excluding the Global Financial Crisis, the

largest percentage on record.

On the one hand, that suggests overseas investors aren't too

worried about Britain's fiscal health. But it's also a risk, as

foreign investors are likely to be the first to sell in the

event of a shock or crisis, and therefore demand an attractive

premium to stick around.

As former Bank of England Governor Mark Carney famously said

in 2016, Britain relies heavily on "the kindness of strangers"

for its funding. And as the gilt selloff in late 2022 showed,

that kindness can't be taken for granted.

Right now, owners of gilts are enjoying the highest bond

yields in the G7 group of countries, a reflection more of

Britain's testing inflation and public debt dynamics than a

positive growth outlook.

Vikram Aggarwal, fixed income investment manager at Jupiter

Asset Management, says this suggests the gilt market is cheap

and represents an attractive buying opportunity. But this

"cheapness" has persisted for a long time, and the weight of

borrowing requirements on the market is getting heavier.

"The deterioration in UK public finances can't be

underestimated," Aggarwal said on Wednesday.

Reeves won't be underestimating it, that's for sure.

What could move markets tomorrow?

* Industrial and Commercial Bank of China results (full year

2024)

* U.S. GDP (Q4, final estimate)

* U.S. 7-year Treasury note auction

* U.S. weekly jobless claims

* Several U.S. Fed officials speak, including: Vice Chair

for

Supervision Michael Barr, Governor Michelle Bowman, Cleveland

Fed President Beth Hammack, Philadelphia Fed President Patrick

Harker, Richmond Fed President Thomas Barkin, and Kansas Fed

President Jeffrey Schmid

* British Prime Minister Keir Starmer meets U.S. President

Donald

Trump in Washington

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. Trump tariffs on Venezuela crude buyers are a

potent new

tool of US pressure

2. Trump tariffs loom over Britain's debt-laden

economy

3. FX markets still suspect Trump is bluffing: Mike

Dolan

4. 'This is not the time to go it alone,' NATO's

Rutte

tells U.S. and Europe

5. Brazil Supreme Court to put Bolsonaro on trial

for

alleged coup attempt

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.

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