ORLANDO, Florida, May 5 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Slow down, you're moving too fast

A relatively quiet day on Monday with some key markets

closed saw Asian and European stocks extend their recent rebound

but Wall Street stumble after U.S. President Donald Trump's

latest tariff salvo, despite more signs of underlying strength

in the U.S. economy.

U.S. stocks have bounced back strongly from their

post-'Liberation Day' lows a month ago. But is this general

positivity justified? 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

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. Taiwan president calls for end to 'false' news

about US

forex talks

2. Japan says no plan to threaten Treasuries sale in

US

trade talks

3. Deep cuts or none at all? A gulf exists in Fed

views:

Mike Dolan

4. Fed policymakers expected to keep rates steady as

tariffs roil outlook

5. World economy already feeling drag from Trump

tariffs

Today's Key Market Moves

* Taiwan's dollar rallies another 3% to a three-year

high

through 30.00 per U.S. dollar. Its 6% gain since Friday is a

record two-day rise.

* Japan's yen is the biggest mover in the G10 FX

space,

rising around 0.5% towards 144.00 per dollar.

* U.S. Treasury yields rise across the board, by as much as

5 bps

at the long end, bear steepening the curve.

* Oil falls again - Brent crude and WTI futures

slide to

fresh 4-year closing lows of $60.32/bbl and $57.13,

respectively.

* Gold snaps out of recent drift lower, spiking 2.4%

to

$3,320/oz.

* Wall Street ends lower, with the Dow down 0.2%, the Nasdaq

down

0.7%, and the S&P 500 snapping its longest winning streak since

2004 to close 0.6% lower.

* Shares in Berkshire Hathaway fall nearly 5% after

94-year-old

CEO Warren Buffett announces he is stepping down.

* Europe's STOXX 600 index rises for a 10th

consecutive

session, its longest winning streak since August 2021.

* Germany's DAX climbs 1.3% - its ninth straight gain - to

within

touching distance of March's record high of 23,476 points.

Tariff uncertainty still runs deep

World markets are in limbo, with investors hoping for

concrete progress in Washington's bilateral trade deal talks

with dozens of countries but wary that the rally in risk assets

over the past month could be losing momentum.

Trump's decision on Sunday to slap 100% tariffs on

foreign-made movies brought into the U.S. was a sign that

perhaps he isn't turning quite as conciliatory as investors had

hoped. Or it may be a reminder of how erratic his tariff

policymaking agenda still is.

Either way, it was enough to help snuff out Wall Street's

nine-day upswing on Monday, in contrast to key markets in Asia

and Europe that maintained their longest winning streaks in

years. Will they run out of puff on Tuesday?

It might be a low bar, but there were two developments over

the weekend that could help investors keep a 'glass half full'

view of markets - Trump pledged not to fire Fed Chair Jerome

Powell, and Japan's finance minister Katsunobu Kato said Japan

has no plans to threaten to sell its $1 trillion-plus holdings

of U.S. Treasuries in trade talks with Washington.

And Treasury Secretary Scott Bessent on Monday repeated his

belief that tariffs, alongside the administration's tax cuts and

deregulation agenda, will drive growth to near 3% this time next

year.

The U.S. economic data is mostly coming in on the stronger

side of expectations, giving the Fed more breathing space,

although how much longer that lasts remains to be seen.

Some Asian currencies are clocking their biggest gains in

years, and on Monday car giant Ford pulled annual guidance.

Tariff uncertainty is still running deep.

Wall Street's 'fever dream' could end in cold sweats

Wall Street's recent rebound from its April lows

suggests equity investors are pricing in a benign outlook for

the U.S. economy, which contrast starkly with the more ominous

signals coming from the oil, gold and fixed income markets. Is

this justified confidence, or dangerous complacency?

If you had turned off all communications on April 2 and

logged back on today, you would find the S&P 500 roughly

unchanged, with no sign of the 15% slump suffered in the days

immediately following President Donald Trump's April 2 tariffs

announcement.

The S&P 500 has risen nine days in a row through May 2, its

best daily winning streak in 21 years. Meanwhile, the "S&P 493"

- the broad index excluding the "Magnificent Seven" tech

megacaps - is flat for the year to date, also remarkable given

the tumult over the past four months.

Contrast that with other markets.

Oil on Friday had its lowest close in four years and is down

25% on a year-on-year basis. While this partly reflects calls

for accelerated output hikes by OPEC+, the macroeconomic signals

flashing here are pretty clear: weak demand, sluggish growth and

disinflation.

Gold, meanwhile, is up 25% this year and still above its

"Liberation Day" close, despite drifting down from its recent

record high of $3,500 an ounce. While this is not an indication

of heightened disinflation fear, it is a sign of elevated fear

overall. Bullion's allure as the world's premier safe-haven

asset has rarely been stronger.

And what of U.S. Treasuries? The two-year yield has

rebounded in recent days but is still 40 basis points lower this

year, and rates traders are still anticipating at least three

quarter point cuts from the Federal Reserve this year. Both are

pricing in meaningful economic slowdown.

COLD SWEATS

Is this simply an example of the old adage that equity

investors are paid to be optimistic while bond investors are

paid to be pessimistic?

Perhaps, but there is some justification for Wall Street's

optimism. It's largely rooted in the view that the economic

damage inflicted by tariffs won't be as bad as feared a few

weeks ago, partly because the Trump administration has

backpedaled in the face of market ructions. In other words, the

"Trump put" is back.

Investors also have reason not to be too worried about the

0.3% GDP contraction in the first quarter, as it largely

reflects the front-loading of imports, a statistical anomaly

that will be quickly reversed.

It was a "gross distorted product", according to Goldman

Sachs economists, who anticipate a 2.4% GDP expansion in the

second quarter.

Moreover, while "soft" economic data like consumer sentiment

indicators continue to flash red, much of the "hard" data, like

employment figures, is holding up well.

And even if real growth this year is only 0.5% - Goldman's

estimate, which is at the lower end of forecasts - that still

implies nominal growth of close to 5%, if inflation tops 4%, as

many economists expect.

Importantly, earnings are driven by nominal growth rates.

While first quarter earnings are obviously "rear-view mirror"

numbers in the context of the trade war, around 74% of the 357

companies in the S&P 500 that have reported so far have beaten

analyst estimates, according to LSEG's Tajinder Dhillon. This

compares to a long-term average of 67.0%.

And the 12-month forward growth expectations for the S&P 500

are still running at a punchy 10%.

But that's not the whole story. Many firms have slashed

forecasts or declined to give any guidance at all.

Even though Trump seems very likely to dial down his initial

tariff numbers, the cost of doing international business is

still going to rise significantly. Whether that cost is borne

more by businesses or consumers remains to be seen, but in the

broader context of economic activity and corporate

profitability, the effect will be the same.

Tariffs haven't bitten yet, but they will. In an interview

with Bloomberg TV on Friday, Gene Seroka, executive director of

the Los Angeles port - the biggest in the country - pulled no

punches: "CEOs are telling me, 'hit the pause button'. Hiring,

off the table for right now. Capital investment, pause. And the

retailers are telling me that even 10% (tariffs), 'I'm going to

have to pass it on to the consumers'."

Bob Elliott, CEO at Unlimited Funds, reckons equities are

priced as if the last month was a "fever dream". The risk is

that investors break out in cold sweats in the months ahead.

What could move markets tomorrow?

* China 'unofficial' Caixin services PMI (April)

* Euro zone producer price inflation (March)

* Trump to meet Canadian prime minister Mark Carney at the

White

House

* U.S. Treasury 10-year note auction

* U.S. trade (March)

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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