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

columnist for Reuters)

By Mike Dolan

Morning Bid U.S.

What matters in U.S. and global markets today

By

Mike Dolan

, Editor-At-Large, Financial Industry and Financial Markets

We've revamped Morning Bid U.S. to offer you more in-depth

markets analysis and commentary. Mike Dolan will help you make

sense of the key trends shaping markets each day. For more

expert analysis, look out for Reuters' new markets and finance

commentary vertical, coming this spring.

Another day, another roller-coaster for world markets. Europe's

stocks and the euro have surged again on the

extraordinary news that Germany is ready to take its foot off

its debt brake, re-arm and plan half a trillion euros of funding

for infrastructure.

Electrified euro markets and surging German bund yields

stand in contrast to nervy Wall Street, where the

S&P500 ended more than 1% in the red again on Tuesday

based on concerns about a potential U.S. economic downturn.

This week's salvo of U.S. import tariffs may also be

spurring action in Beijing. China too has laid out plans for a

further fiscal boost to help insulate its economy and enable it

to meet its ambitious 5% growth target.

The combination of European and Chinese stimulus with hopes

for some relief on the tariff front has lifted world stocks

and helped ailing U.S. stock futures perk up

ahead of Thursday's bell.

Today I'm delving into the recent slide in the dollar, which

has surprised many who expected trade wars and rancorous

geopolitics to send investors fleeing to this 'safe haven'.

Today's Market Minute

* Trump declares "America is back" in his State of the Union

speech to Congress, drawing catcalls from some Democrats who

walked out in protest.

* Here are some key takeaways from his 100-minute long

speech if

you don't have time to read through all of it.

* German political parties have agreed on a watershed debt

overhaul to revamp its military and economy, sparking a surge in

European markets.

* Trump said U.S. lawmakers should ditch the 2022 bipartisan

"CHIPS act" that has provided $52.7 billion in subsidies for

semiconductor chips manufacturing and production.

* China is ramping up stimulus to guard its economy from the

escalating trade war with the US and from changes it says are

'unseen in a century'.

Haven no more? Dollar 'smile' looks lopsided

This week's steep dollar plunge may be more remarkable than

it appears on first glance because the greenback has failed to

respond positively to intensifying global political and market

stress, suggesting a profound shift in market behaviour may be

afoot.

One could argue that the dollar has simply been tracking

U.S. interest rate expectations and debt yields lower over the

past week. Both have been spooked by warnings of a rare

contraction of the once bulletproof U.S. economy.

But this was also a period in which Washington initiated its

long-threatened trade war, undermining regional North American

allies while also backing away from its transatlantic military

alliance over the fate of Ukraine. Anxiety, tension and

uncertainty are running extremely high.

The dollar has typically thrived in such moments of great

stress in the past, mainly as nervy global investors usually

seek a liquid haven in either U.S. Treasury bonds or dollar cash

deposits to ride out any storm.

That behaviour has long been known in currency markets as

part of the dollar "smile". The basic idea is the greenback

tends to rise in times of hot inflation and rising U.S. interest

rates, but also in times of great geopolitical disruption as the

world seeks safety.

As the shape of a "smile" would suggest, the dollar tends to

sag in value in between the extremes, when all is calm and well.

To be sure, a dash for safety in bonds may well be underway

locally on Wall Street this week, with investors fleeing pricey

U.S. stocks due to the rare and sudden rise in recession angst.

But the buck's simultaneous drop on the foreign exchanges in

recent days suggests global investors are much less drawn to

America as a haven this time around.

Even though Mexico's peso and Canada's dollar

weakened on the news of new U.S. tariffs, the euro and

Japan's yen surged to their best levels of the year.

The DXY index, which measures the dollar against the

most-traded currencies, fell to its lowest point since

early December.

And this is at least partly due to foreign investors having

improved alternatives at home as well as growing concern over

the direction of U.S. economics and politics.

European savers and investors - partly responsible for

pumping up Wall Street's bubble-like tech sector over the past

four years - may simply be returning to the safety of home.

Thanks to U.S. President Donald Trump's goading, Germany and

other European nations are seriously discussing rapid

rearmament. And European investors now have the economic spur to

justify taking advantage of far cheaper equity valuations on the

eastern side of the Atlantic.

HAVEN NO MORE?

Deutsche Bank's top currency strategist George Saravelos

reckons it's hard to overstate the scale of the global political

and trade rethink this week. "Two pillars of America's role in

the world are being fundamentally challenged," he said.

He noted the highest average U.S. tariff rate since the

collapse of the Bretton Woods fixed exchange rate era in the

early 1970s is coming just as severe damage to the transatlantic

military alliance is forcing Germany and Europe to plan hundreds

of billions of euros worth of defence and infrastructure

spending.

The fall of the greenback in tandem means "the potential

loss of the dollar's safe-haven status against that backdrop has

to be looked at," he said. "We do not write this lightly."

Most notable for Saravelos was the breakdown in the

correlation between the dollar and risk assets that he says has

been at the core of portfolio construction over the past decade.

To be sure, the Trump team may love the sight of a falling

dollar. The president lambasted Japan and China again this week

for "killing their currencies" to outflank U.S. trade rivals.

And the administration may even enjoy the sight of rallying

Treasury bonds reducing the country's debt servicing costs.

But the prospect of damage to global role of the dollar may

sit more uncomfortably - as would the sight of overseas

investors fleeing Wall Street, so long the only game in town.

Taken to its limit, the prospect of "America First" at home

may end "America First" for world investors.

Today's key chart

Germany and the European Union have responded to growing

doubts about Washington's commitment to the Transatlantic

alliance with rare speed and enormous funding plans for defence

and infrastructure. This potential fiscal boost to the EU

economy is electrifying markets and the euro. European stock

indexes have outperformed the S&P 500 by more than 10% so far

this year, with Europe's defense stocks outstripping the Nasdaq

100 by about 35%.

Today's events to watch

* U.S. February private sector payrolls from ADP, February

US

service sector surveys from ISM and S&P Global, January factory

goods orders

* Federal Reserve publishes 'Beige Book' on economic

conditions.

Bank of England Governor Andrew Bailey and other BoE officials

answer questions in Parliament

* U.S. corporate earnings: Campbell's, Brown-Forman

Opinions expressed are those of the author.

(By Mike Dolan; Editing by Anna Szymanski.

[email protected])