ORLANDO, Florida, April 29 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

The 100-day (trade) war

Unlike the day before, Wall Street extended the broad-based

upswing across Europe and Asia on Tuesday as investors shrugged

off a record high U.S. trade deficit in March, and took heart

from signs that global trade tensions continue to ease.

Washington says it is making progress in trade talks with

several countries, although a direct line to China has yet to be

established. Could Beijing 'weaponize' its stash of Treasuries

as part of the trade war with America? Unlikely, and below I

explain why, but first, a roundup of today's market moves.

I'd love to hear from you, so please reach out to me with

comments at [email protected]. You can also

follow me at @ReutersJamie and @reutersjamie.bsky.social.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. UPS cuts 20,000 jobs, GM delays investor call as

Trump's

tariffs create corporate chaos

2. US exit from IMF would be true dollar shock: Mike

Dolan

3. China ramps up global yuan push, seizing on

retreating

dollar

4. In a vise of slowing demand and rising costs,

small

businesses are signaling trouble ahead

5. US Supreme Court fight may shape Trump's ability

to fire

Fed chair

Today's Key Market Moves

* Wall Street rises across the board - the Dow gains 0.8%,

the S&P

500 and the Nasdaq both rise 0.6%.

* The S&P 500 posts its highest close since Trump's April 2

'Liberation Day' and rises for a sixth day - its best run this

year.

* The VIX volatility index falls below 24.0 for the first

time

since Trump's 'Liberation Day' tariffs.

* Britain's FTSE 100 rises for a 12th consecutive

day, its

longest winning streak in more than eight years.

* U.S. Treasury yields fall to a three-week low, by as much

as 5

basis points at the long end. The curve bull flattens.

* A day of reversal across G10 FX - the U.S. dollar index

rises

0.3%, while the euro, sterling, yen and Swiss franc all fall a

similar amount.

* Oil falls to a two-week low, with Brent crude

futures

down 2.4%. That brings the decline so far this week to 4%.

* Bitcoin up 1%, close to making multi-month highs above

$95,857.

Britain sets out new rules to boost confidence in crypto.

Do you want to make a deal?

If it was a calm day in terms of headline stock, bond and

currency moves on Tuesday, there was huge churn under the

surface, particularly in the shares of firms reporting

first-quarter results and attempting to give guidance for the

quarters ahead.

The overall picture on Tuesday was reasonably upbeat.

European shares rose for a sixth day, lifted by banks like HSBC

and Deutsche Bank, while British stocks rose for a 12th day, a

record winning streak last seen in December 2016-January 2017.

Wall Street eventually made up its mind late in the day to

join the rally. If markets are beholden to the constant twists

and turns in the newsflow on tariffs and trade deals, investors

definitely latched onto the positive ones on Tuesday.

China has waived the 125% tariff on imports of ethane and

some other products from the United States, U.S. trade secretary

Howard Lutnick said a deal with an unnamed country has been

reached, and President Donald Trump is set to soften auto

tariffs.

So even though Trump and China's President Xi Jinping may

not be talking to each other yet, negotiations elsewhere are

well underway. But investors' optimism may be fragile and

fleeting - about 40 companies have removed or lowered their

forward guidance in the first two weeks of the first-quarter

earnings season, a Reuters analysis showed.

Among them are General Motors, Sweden's Electrolux and

Volvo, and Germany's Adidas and Porsche, who have pulled or

slashed their 2025 forecasts because they don't have the

visibility required to invest, spend, or plan ahead.

Meanwhile, oil heavyweight BP reported a near-50% slump in

profits and UPS said it would cut 20,000 jobs to lower costs.

Cracks are starting to appear in the U.S. economy - data on

Tuesday showed that pre-tariff stockpiling pushed the trade

deficit to a record high in March, while job openings fell more

than expected this month.

Wednesday's earnings calendar is packed with major Asian,

European and U.S. reports. The pick of the bunch will likely be

from U.S. 'Magnificent Seven' constituents Microsoft and Meta.

Investors are lurching between optimism, caution and

pessimism on a daily basis, which explains why markets have

largely flatlined for the last couple of weeks.

This is a big week for earnings and economic data, and

longer-term policy developments too. The U.S. Treasury on

Wednesday announce its debt auction sizes for the coming

quarter, and on Thursday the Bank of Japan sets interest rates.

Why China won't 'weaponize' its U.S. Treasuries stash

China's 'nuclear' option in its financial war with the

United States has long been assumed to be rapidly liquidating

its outsized Treasury bond holdings, as this could crash the

dollar, jack up interest rates and disrupt the U.S. economy.

Concerns about this potential threat have returned in recent

weeks, as all-out trade war has broken out between the world's

two largest economies. But this fear of 'mutually assured

financial destruction' is, and has always been, a notion based

more in myth than reality.

Dollar-denominated assets made up 55% of China's official

currency reserves at the end of 2019, the last official

confirmation of this figure by China's State Administration of

Foreign Exchange (SAFE), down significantly from the peak of 79%

in 2005. It was also below the prevailing global average in 2019

of 61%, according to International Monetary Fund data.

Some of this has likely been offset by increased dollar

holdings among state commercial banks, whose foreign portfolios

are thought to be much more weighted toward dollar assets. But,

like other countries, China has been steadily reducing its

relative exposure to the greenback over the past 20 years.

This trend is even clearer with regard to China's official

holdings of U.S. Treasuries, which stood at $784 billion in

February, according to U.S. Treasury data. That's down from a

peak of $1.32 trillion in 2013 and is less than 3% of the $28

trillion Treasuries market, a far cry from the high of 14% that

China commanded in 2011.

China does own Treasuries held in other countries like

Belgium, but again, the trend is clearly moving in the direction

of less exposure to the U.S.

These figures suggest that China's power to inflict damage

in the U.S. bond market has been diluted considerably over the

last decade.

COULD THEY DO IT?

Nevertheless, the outflows it could potentially trigger by

selling are still huge in nominal terms.

Could China sell large chunks of its Treasuries stash? Of

course, anything is possible, especially now that the

established global economic, financial and political norms of

the past several decades are being rewritten.

But it certainly wouldn't be in China's interest to do so.

The obvious reason is the most pertinent: dumping Treasuries

would crush the value of its own holdings, landing a risk-averse

state with heavy losses. Poking Washington in the eye is one

thing, shooting oneself in the foot is another.

From a practical standpoint, it would also be extremely

difficult. The market would almost certainly get wind that

something was up and sell to get ahead of the game, again

leaving Beijing with significant capital losses.

Moreover, any market dysfunction would also quickly be met

with large-scale buying from the Federal Reserve to ensure

financial stability.

And the last thing China needs in the face of weak growth,

deflation and a crippling trade war with the U.S. is a stronger

currency. Beijing would not necessarily have to buy yuan with

the proceeds from any Treasury sales. But in its current

situation, it would be counterproductive for Beijing to try to

undermine the U.S. by weakening the dollar, even temporarily.

"100-YEAR HORIZON"

Instead, China could 'move up the curve' by allowing the

Treasury notes it holds to mature, reinvesting the proceeds in

bills or other cash instruments. That's a dollar-neutral policy,

but it could still push long U.S. yields higher.

"We know the U.S. is having some trouble selling notes -

China could make that even harder," says Brad Setser, senior

fellow at the Council on Foreign Relations.

Beijing could also make stronger tweaks to its non-U.S.

custody holdings of Treasuries, or Chinese state commercial

banks could reduce their holdings, as neither would appear in

official FX reserves data.

But ultimately, China is probably stuck with the Treasuries

it has, and the route to lowering that exposure will be the same

as it has been for years: passive and gradual.

At an event hosted by the Institute of International Finance

in Washington last week, U.S. Treasury Secretary Scott Bessent

said he wants to see quick "results" in fixing global trade,

economic and financial imbalances.

"Some countries might have a 100-years perspective. We

don't," he quipped, clearly nodding to China.

China's economic horizon may not be quite that long, but it

is longer than Washington's. And as China considers what to do

with its U.S. debt or dollar holdings, it will likely leave the

rash policymaking to Washington and continue to play the long

game.

What could move markets tomorrow?

* Huge day for Q1 earnings reports, including: Samsung,

Glencore,

UBS, Barclays, Microsoft and Meta.

* China PMIs (April)

* Japan retail sales, industrial production (March)

* Germany inflation (April, preliminary)

* Germany GDP (Q1, flash)

* Euro zone GDP (Q1, flash)

* U.S. GDP (Q1, advance)

* U.S. PCE inflation (March)

* U.S. Chicago PMI (April)

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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