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

columnist for Reuters.)

By Mike Dolan

LONDON, March 12 (Reuters) -

Morning Bid U.S.

What matters in U.S. and global markets today

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

Markets

The mere threat of a trade war unnerved markets, but they now

have to cope with the real thing, as U.S. tariff hikes on metals

imports kick in today and retaliation comes swiftly. I'll

discuss the ongoing market gyrations below.

Today, I'll also take a closer look at U.S. President Donald

Trump's 'reaction function' toward financial market volatility

and consider if it may affect policy decisions going forward.

Today's Market Minute

* Trump's increased tariffs on all U.S. steel and aluminum

imports

took effect on Wednesday.

* TSMC has pitched U.S. chip designers Nvidia Advanced Micro

Devices and Broadcom about taking stakes in a joint venture that

would operate Intel's factories, according to four sources

familiar with the matter.

* Greenland's pro-business opposition Demokraatit party,

which

favours a slow approach to independence from Denmark, won

Tuesday's parliamentary election that was dominated by Trump's

pledge to take control of the island.

* The United States agreed on Tuesday to resume military aid

and

intelligence sharing with Ukraine after Kyiv said it was ready

to support Washington's proposal for a 30-day ceasefire with

Russia, the countries said in a joint statement.

* The Republican-controlled U.S. House of Representatives on

Tuesday passed a stopgap bill to keep federal agencies funded

past Friday, averting a partial shutdown beginning this weekend.

Tariff tremors

Tuesday was yet another down day for the S&P500 after

a volatile session on Wall Street, though Trump's pullback from

a late 50% tariff sideswipe against Canada calmed the horses

somewhat.

The prospect of a temporary ceasefire in the Russia-Ukraine

war also elicited some relief, even if Ukraine is the only side

on board with the U.S.-brokered deal so far.

And now slightly punch drunk markets are waiting to see the

latest U.S. consumer price report, though last month's inflation

is slightly beside the point for the markets and the Federal

Reserve - as both are more wary of what's coming down the pike.

Headline and core inflation are expected to have ticked down

a notch in February, with the latter falling back below 3%.

Fed officials are in their traditional public blackout

period ahead of next week's meeting. Markets expect no further

easing until June, as the central bank will need to parse the

tariff impact and economic downturn signals.

With a 10-year note auction today, U.S. Treasuries

were steady first thing this morning, while the

dollar held precariously above Tuesday's new low for the

year. High-yield corporate credit spreads hit another 6-month

high at 322 basis points yesterday, however.

The Vix 'fear index' has also pulled back slightly

from recent highs, while stocks in Europe and Asia

were generally firmer going into the U.S. trading day.

Meanwhile, the Canadian dollar has remained

remarkably calm, despite tariffs kicking in, a new Prime

Minister in office and a Bank of Canada interest rate cut

expected later today.

Investors see an 87% chance the BoC will cut its main policy

rate by 25 bps from 3%, the latest after two percentage points

of easing since June.

Given all the market volatility in recent weeks, let's now

consider whether any financial market is still capable of

pushing back on the U.S. president's agenda.

'Stock Troopers' prove Trump's biggest market foes

The fabled "bond vigilantes" and "currency cops" have yet to

really push back on Trump's agenda, leaving anxious equities as

the only financial market countering the U.S. president's new

economics.

Enter the "stock troopers".

The Trump team has progressed to economic trench warfare

this week, with the president doubling down on Canadian tariffs

just the biggest stock meltdown since his inauguration. But

plunging equities could yet shift his policy calculus.

Not only has Trump routinely identified the stock market as

a critical measure of his success in the past, but the

precipitous loss of market value this month could undermine the

confidence of rich American families sensitive to the "wealth

effect" and critical to aggregate consumption and growth.

Trump and his deputies attempted to face down the skirmish

and economic risks last weekend, passing off the turbulence as a

temporary, inevitable hiccup given the scope of their radical

policy change.

Perhaps the most telling Trump comment in the unfolding

battle was: "I'm not even looking at the stock market."

This nonchalant view - coming from a president who

previously used U.S. equities as a policy weather vane -

unsurprisingly spooked investors.

Many had assumed they had a "Trump put", essentially the

willingness of the new administration to slow down or pull back

on its disruptive tariff and spending agenda if stock markets

balked.

Back in his State of the Union address to Congress in

February 2020, Trump said of the stock market: "All of those

millions of people with 401(k)s and pensions are doing far

better than they have ever done before with increases of 60, 70,

80, 90 and 100% and even more."

So far, the president has yet to acknowledge the reversal of

some of that paper wealth, despite the 8-12% losses posted by

three key Wall Street indexes since he was

sworn back into office in January - with a loss of some $5

trillion in total market value.

HIGH AND RISING

But with business confidence draining amid tariff and jobs

uncertainty, including among traditionally pro-Trump small

business, investors at home and abroad smell big trouble. Wall

Street and global investment houses are rushing to downgrade

recommended weightings in U.S. equity and cutting U.S. growth

forecasts to boot.

"Uncertainty is high and rising on Main Street, and for many

reasons," said Bill Dunkelberg, Chief Economist at the National

Federation of Independent Business (NFIB), whose February

sentiment survey posted its third straight decline last month.

Big global investors fear the potential inflationary effects

of Trump's trade, business and diplomatic upheavals. This should

be alarming for the president, given the politically toxic

impact of high inflation on the previous administration of Joe

Biden.

"I think if we all are becoming a little more nationalistic

and - I'm not saying that's a bad thing, you know, it does

resonate with me ... (but) it's going to have elevated

inflation," BlackRock CEO Larry Fink said on Monday.

And it's not only domestic investor confidence that's

wavering, which should be unnerving considering how much foreign

investment has pumped up Wall Street in recent years. That's

especially true of European funds, many of whom can now find

emerging opportunities back home in their cheaper equity

markets.

A standoff with the stock market is certainly not what most

people had predicted after the election.

Many bet that so-called bond vigilantes - faced with a

wobbling Treasury market and rising government borrowing costs -

would push back against unfunded tax cut plans, rising deficits

and inflationary tariffs.

Then, as tariff hike threats mounted, the dollar initially

rose sharply, and some felt this currency move would neutralise

the impact of the import taxes on foreign businesses selling

into America.

But business and household jitters coupled with the prospect

of an economic downturn have seen stocks cry foul instead, even

as Treasury yields and the dollar turn tail.

Some speculate that market-savvy Treasury Secretary Scott

Bessent has convinced Trump that getting Treasury yields down -

and the dollar with them - is a bigger win given what the

administration wants to do. If true, you could argue that the

administration has posted two successes from the three main

macro markets - which may satisfy them for now.

But a snowballing stock market slump will surely resonate

more roundly with Trump's base. And if it catalyzes a wider

recession, it may pack a far bigger punch than bonds or

currencies.

Chart of the day

Trade wars are not one-way affairs, and retaliation to

Trump's tariff moves is drawing swift responses that will

amplify the economic impact of the president's actions.

Increased tariffs on all U.S. steel and aluminum imports took

effect on Wednesday, drawing counter tariffs from the European

Union on 26 billion euros ($28 billion) worth of U.S. goods from

next month. Trump initially threatened Canada with doubling the

duties to 50% but then backed off after Ontario suspended moves

to impose a 25% surcharge on electricity exports to the states

of Minnesota, Michigan and New York.

Today's events to watch

* US February consumer price report, February Federal budget

* Bank of Canada policy decision

* European Central Bank President Christine Lagarde, ECB

chief economist Philip Lane and Bank of France Governor François

Villeroy de Galhau speak in Frankfurt

* US Treasury sells $39 billion of 10-year notes

* US corporate earnings: Adobe, Crown Castle

* Chancellor of Germany Olaf Scholz and EU council president

Antonio Costa hold news conference in Berlin

* G7 foreign ministers gather in Quebec

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.