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

columnist for Reuters.)

By Mike Dolan

March 10 - Morning Bid U.S.

What matters in U.S. and global markets today

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

Markets

If markets believed Donald Trump would pause his disruptive

economic plans at the first sight of a growth downturn or a

stock market tantrum, they may have to think again.

Although Commerce Secretary Howard Lutnick flatly ruled out a

recession in an interview on Sunday, the President declined to

make a prediction either way and insisted some turbulence was

inevitable.

"There is a period of transition, because what we're doing

is very big," Trump told Fox News. "It takes a little time, but

I think it should be great for us."

The stock market has been unnerved recently, with

uncertainty about sweeping trade tariffs and concerns about

government spending and job cuts undermining business and

consumer confidence.

The S&P 500 lost another 3.1% last week, with the

tech heavy Nasdaq down 3.45% and the Dow Jones blue

chips off 2.4%. The Russell 2000 Small Cap index

fell 3.9%.

"He's not going to step off the gas," Lutnick said on NBC's

"Meet the Press", referring to Trump's determination to push

ahead.

U.S. stocks stabilized somewhat after the February employment

report on Friday showed a pick up in jobs and Federal Reserve

Chair Jerome Powell said the economy was holding up so far. But

jobs numbers did little to dispel fears of a softening labor

market, and Powell merely reaffirmed that the Fed will be on

hold for the foreseeable future.

Stock futures were in the red again first thing on

Monday, Treasury yields slipped again and the dollar

clawed back some of last week's steep losses.

Overseas, Chinese markets were jarred by weekend data

showing a surprise return of consumer price deflation. European

stocks are off too.

In other news, Canada's dollar was a touch firmer after

former Bank of Canada and Bank of England governor Mark Carney

won the race to be the country's new Prime Minister.

Today I'll take a look at how hyperactive government policy

is sidelining central banks. After years in thrall of monetary

policy, investors may now have to look elsewhere for direction.

Today's Market Minute

* President Donald Trump declined to predict whether the

U.S.

could face a recession in an interview published Sunday amid

stock market concerns about his tariff actions on Mexico, Canada

and China.

* China's consumer price index in February missed

expectations,

falling at the sharpest pace in 13 months as producer price

deflation persisted. Seasonal demand has faded and households

remain cautious about spending amid job and income worries.

* Former central banker Mark Carney won the race to become

leader

of Canada's ruling Liberal Party, official results showed on

Sunday. He will take over at a tumultuous time, with Canada in

the midst of a trade war with the United States.

* European Union finance ministers are discussing on Monday

how to

increase defence spending through new joint borrowing, existing

EU funds and a greater role for the European Investment Bank,

the Polish EU presidency said.

* Finally, U.S. job growth picked up in February, Friday

data

showed, but cracks are emerging in the once-resilient labor

market as chaotic trade policy and deep federal government

spending cuts threaten to disrupt economic growth this year.

Central banks slip into the shadows

Central banks have long been the lead policy actors in world

markets and economies, but they are stepping back into

supporting roles as governments grab the limelight.

In less than two months, the avowedly disruptive new U.S.

administration has prompted a dramatic re-casting of the global

economic script, upending economic forecasts and cross-border

investment flows around the world.

The sweeping trade wars Donald Trump's government has unleashed

and the fracturing of decades-old U.S. political and military

alliances have forced a generational shift in German and

European fiscal policy, while encouraging China to step up

stimulus measures to meet its restated and now ambitious 5%

growth goal.

But the scale of trade uncertainty has unnerved U.S. businesses

and shaken household confidence, with U.S. downturn fears

amplified by the slashing of government jobs and ructions on

Wall Street.

Caught in the fog, the Federal Reserve can barely make an

accurate forecast for what's going to happen next week - never

mind feel confident about predicting where the economy and

inflation might be when any interest rate change hits home some

12 months hence.

It's a good bet the Fed will sit on its hands for a while longer

while it fathoms it all out. Fed Chair Jerome Powell said as

much in his speech on Friday.

But even reading incoming data has gotten a lot harder. For

example, this week's inflation update will of course be watched

closely, but last month's consumer prices won't shed any light

on the potential impact of the proposed tariffs coming down the

pike.

Even before the end of the first quarter, investors are

being forced to rip up the year's plans already and a Fed likely

on hold for a lot longer is not what to watch for what happens

next.

"The more benign macroeconomic backdrop that investors had

in mind going into 2025 has arguably been shattered," reckons

AXA Investment Managers' Chris Iggo. "The U.S. administration's

challenges to the global trading and security order have the

potential to disrupt trade, capital flows, consumption,

investment spending and government policy."

"Investors now face ambiguity over economic growth,

inflation, interest rates, and long-term borrowing costs - not

to mention political risk."

WHATEVER IT TAKES: FISCAL VERSION

The growing dominance of fiscal policy is even more apparent

in Europe.

The European Central Bank cut interest rates again last week,

while offering marginally hawkish statements about its plans as

it too re-maps the shifting macroeconomic landscape.

But for financial markets, Thursday's ECB move was almost a

sideshow to the dramatic fiscal changes in Germany, which

announced plans for nearly a trillion euros in defense and

infrastructure spending, reinforced by plans for wider European

joint borrowing.

Opinions differ widely about how much further the ECB's

policy rate will fall during this cycle, but it's another decent

bet the central bank will hold the policy line until June at

least, or until it sees how some of these fiscal plans play out.

But even if the ECB wants to stall here given the

potentially huge impact of new government spending promises on

domestic growth and debt, it also has to consider the

implications of Trump's increasingly erratic trade threats as

April's "reciprocal" U.S. tariff plans hit Europe directly.

Will the ECB see this as a reason to ease again? It almost

certainly doesn't know the answer to that yet.

And, in truth, a cut here or there likely won't matter much.

The combination of continental rearmament, the lifting of

Berlin's self-imposed "debt brake", and the re-engineering of

euro budget rules will pack a far bigger punch than any marginal

tinkering in borrowing rates.

The euro certainly seems to think so. It batted away

last week's rate cut, clocking its biggest weekly gain on the

dollar in 16 years.

Global equity markets also paid little heed to the ECB, as

the Transatlantic capital shift from pricey U.S. tech stocks to

far cheaper European industrial and defence sectors continued to

unfold.

DRIVING SEAT

It's not that central banks no longer have power to move

markets by changing the cost of money. It's just that

calculations about what such actions would mean for economies

and markets are now much more heavily influenced by fiscal

policy forces.

All this may keep monetary policymakers in the wings for

much of the year, relegating their prognostications to slightly

"beside the point" in the process.

"Fiscal policies will be the primary driver of almost

everything that matters to investors," currency fund manager

Stephen Jen said last week. "Central banks will only react to

these policies and can no longer dictate where the markets go.

Bond yields will drive equities and currencies."

The "be all and end all" for market thinking for decades,

central banks suddenly - and perhaps deliberately - figure well

down the credit roll.

Chart of the day

Even though U.S. February payroll tallies came in close to

expectations, the employment report included signs that the

labor market is softening. The number of people working

part-time for economic reasons rose 460,000. That's the biggest

monthly rise since June 2023. It brings the total to 4.9

million, the highest since May 2021. As a result, a broader

measure of unemployment, which includes people who want to work

but have given up searching and those working part-time because

they cannot find full-time employment, jumped to 8.0%. That was

the highest since October 2021.

What's more, multiple job-holders shot up to 8.860 million

from 8.764 million in January. They represented 5.4% of the

employed, the highest share since April 2009.

Today's events to watch

* US February employment trends, New York Federal Reserve

February consumer expectations survey

* Euro zone finance ministers meet in Brussels to discuss

regional fiscal stance, defence spending, budget challenges;

European Central Bank President Christine Lagarde and ECB board

member Piero Cipollone attend

* Ukrainian President Volodymyr Zelenskyy travels to Saudi

Arabia to meet Saudi Crown Prince Mohammed Bin Salman

* US corporate earnings: Oracle

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.

(By Mike Dolan

Editing by Anna Szymanski; mailto:[email protected])