ORLANDO, Florida, May 14 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Eyes turn to Powell

The powerful rise in risk and growth assets lost some steam

as U.S. stocks ended mixed and oil slipped on Wednesday,

although the losses were minimal, suggesting investors aren't

ready to call a halt to the rally just yet.

In my column today I look at the 'Global South', and how its

time to shine may be now if the era of 'U.S. exceptionalism'

forces a major shift in global capital and investment flows.

More on that below, but first, a roundup of the main market

moves.

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

comments at [email protected]. You can also

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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. EU ready to take slow road in U.S. trade talks in

pursuit of bigger deal

2. How Trump's trade war has evolved

3. Historic U.S. budget alarm replaces tariff

anxiety: Mike

Dolan

4. ECB supervisors press banks on dollar funding

over Trump

concerns, sources say

5. Tencent says resilient to U.S. chip curbs after

revenues

rise

Today's Key Market Moves

* The Dow falls 0.2% and the S&P 500 rises only 0.1%, but it

means

the index clocks a two-month closing high and is now flat

year-to-date. A remarkable round trip.

* U.S. tech powers ahead though, lifting the Nasdaq 0.7%.

Some

huge single stock moves, including Super Micro Computer +16%,

and Nvidia, Tesla and AMD all up more than 4%.

* Japan's Topix falls 0.3% to snap a 13-day winning run, its

longest streak in nearly 16 years.

* Hong Kong's main and tech stock indexes rise more than 2%

on

strong Tencent earnings. Alibaba announces Q4 results on

Thursday.

* Oil falls 0.8% on surprisingly strong U.S. inventory

build.

S&P 500 completes 2025 round trip

The feelgood factor from the U.S.-China trade truce at the

weekend continues to ripple through world markets, although the

positive impact on prices is understandably fading.

From a Wall Street perspective at least, now that the S&P

500 has recouped most of its losses and is now virtually flat

for the year, it is an ideal juncture for investors to draw

breath and assess the landscape.

From a technical perspective, key equity indices are

comfortably above the 200-day moving averages so the longer-term

upward momentum would appear to be in place.

Markets will be more balanced than they were a month ago. If

anything though, the risk is some investors could now be leaning

too heavily 'long' stocks - the Nasdaq is up 30% from its April

7 low - and 'short' bonds. A speech on the economy from Fed

Chair Jerome Powell on Thursday might be pivotal for short-term

direction.

A Fed rate cut by September is now no longer fully priced

into the rates futures curve, and traders barely see 50 basis

points of easing this year. Contrast this with the depths of the

tariff tantrum in early April when 100 bps of rate cuts this

year, starting as early as June, was the consensus view.

The more hawkish shift hasn't completely dented U.S. or

global risk appetite though, as it has been driven by a sudden

improvement in the economic outlook rather than a surge in

inflation expectations. That said, U.S. fiscal concerns are back

on investors' radar again.

Figures from China earlier on Wednesday, meanwhile, showed

that bank lending tumbled more than expected in April,

underscoring the weakness of the domestic economy and the impact

of heightened trade tensions with the United States.

But these tensions have cooled considerably, and investors

will have more positive, forward-looking signposts for

direction. The news flow over the last 48 hours will have given

them cause for cautious optimism.

E-commerce retailer JD.com topped market estimates for

quarterly revenue on Tuesday, Tesla plans to start shipping

components from China to the U.S. for the production of Cybercab

and Semi trucks soon, and Tencent Holdings' Q1 earnings beat

forecasts. Tencent President Martin Lau also said stockpiles of

AI chips should protect it from U.S. restrictions.

Chinese and Hong Kong equities outperformed on Wednesday,

with Hong Kong's headline and tech indexes rising more than 2%.

Meanwhile, Thursday's calendar is overflowing with earnings

results, policymaker speeches and economic data that could

potentially move markets around the world. Perhaps the most

important of them all will be Powell's remarks, his first public

comments since last weekend's 'Geneva convention'.

Calling the 'Global South', your time is ... now?

The era of 'U.S. exceptionalism' may be over - and with it

the Washington-led world economic and financial order of the

last 50 years. This leaves investors with a big question, how

will this reshape capital flows?

The most obvious destination is Europe, home to the world's

second-largest economy and second-biggest reserve currency,

where markets are deep and liquid and the rule of law reigns

supreme.

The so-called 'Global South' may seem less attractive. Its

100-plus disparate countries, excluding China, carry the typical

smorgasbord of emerging market risks, including political

instability, legal concerns and policymaking credibility.

But the global economic and investment landscape is changing

rapidly and perhaps irrevocably, and investors may be skittish

about once again finding themselves over-concentrated in any one

region. Investors with long-term horizons and high risk

thresholds may therefore increasingly consider boosting their

allocations to this enormous and varied 'bloc'.

These countries have long punched below their financial

market weight. But could they be poised to benefit from a global

capital reallocation shift?

That's among the findings in a report published last week by

Deutsche Bank strategists, 'The Global South: A strategic

approach to the world's fourth bloc'.

"The time for the Global South is now," states the report,

which broadly defines the bloc as the 134 member countries of

the G77 group of nations, excluding China, Russia, Singapore and

a few others, adding in Mexico, Turkey and some central Asian

countries.

Some numbers here are worth noting. The group is home to

almost two-thirds of the world's working age population,

produces 40% of the world's energy and key transition metals,

accounts for a quarter of global trade, and has attracted nearly

a quarter of all inward FDI over the past decade.

Indeed, the Boston Consulting Group says foreign direct

investment in the Global South in 2023 totaled $525 billion,

surpassing FDI into advanced economies of $464 billion.

And while it is far too early to say how countries will

align politically, economically, or militarily in the years

ahead, there are already signs of rotation of capital into the

Global South and away from China. Deutsche Bank's report notes

that foreign investment into the Global South has held

relatively steady in recent years while flows into China have

collapsed to near zero.

DIVERSIFICATION AND VALUE GENERATION

China's economic rise in recent decades has been one of the

most astonishing in human history. In 1990, China accounted for

only 2% of developed economies' GDP. By 2021 that figure had

reached 33%, almost matching the Global South's then share.

But China's growth rates have stalled, especially since the

pandemic. The International Monetary Fund forecasts China's

share of advanced economies' GDP will end this decade around

35%, while the Global South's share will rise to a new high of

40%.

"In the event the U.S. trade war remains concentrated

against China, the Global South could evolve into ... a source

of diversification and value generation for investors," Deutsche

Bank's analysts argue.

From an equity allocation perspective, there is a lot of

space to grow. The Global South made up a mere 11% of global

market capitalization at the end of last year, with two

countries - India and Saudi Arabia - accounting for more than

half this share. If the dominance of U.S. equities wanes - they

currently make up more than 70% of global market cap - even a

tiny reallocation to this group could have a big impact on

valuations in these countries.

The risks, however, are manifold and many were on display

during the market turbulence sparked by U.S. President Donald

Trump's tariffs. Figures released by the Institute of

International Finance last week showed that portfolio flows to

emerging markets came to a "standstill" in April.

While the Trump administration is rolling back its initial

plan to slap enormous tariffs on much of South East Asia,

investors may still be anxious about plowing too much capital

into countries that could yet get caught in the U.S. crosshairs.

"The current environment differs fundamentally from past

episodes. This is not an exogenous shock but a deliberate policy

action with structural objectives. As a result, the scope for

rapid normalization is limited," the IIF said.

But what really matters here are not "rapid" moves, but the

structural changes in the global economy that the U.S.

administration's unorthodox policies may have catalyzed.

It's good to remember that Chinese exports to 'conductor

economies' in the Global South have doubled since Trump's first

trade war in 2018. Given how unreliable the U.S. now appears, it

is reasonable to assume that both China and Europe may be

seeking to further diversify their export markets.

So perhaps the time is not 'now' for the Global South, but

it could be coming soon.

What could move markets tomorrow?

* Alibaba earnings

* Euro zone industrial production (March)

* Euro zone GDP (Q1, flash estimate)

* UK trade (March)

* UK industrial production (March)

* UK GDP (Q1, preliminary estimate)

* European Central Bank's Piero Cipollone and Francois

Villeroy de

Galhau speak at conference in Paris

* Bank of England's Swati Dhingra speaks in Brussels

* Federal Reserve Chair Jerome Powell speaks in Washington

* U.S. PPI inflation (April)

* U.S. retail sales (April)

* U.S. industrial production (April)

* U.S. Philly Fed business index (May)

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.