(We've rebranded Morning Bid Asia as Trading Day to offer you

more in-depth analysis and commentary on global markets. I'll

help you make sense of the key trends moving markets just as the

US trading day is ending and Asia's morning is getting started.)

By Jamie McGeever

ORLANDO, Florida, March 3 (Reuters) -

TRADING DAY

Making sense of the forces driving global markets

The divergence between U.S. and European equity markets, a trend

that emerged earlier this year, is widening.

There are several reasons for Wall Street's retreat - U.S.

President Donald Trump's protectionist trade agenda, rich

valuations, the flagging 'Big Tech' rally, and mounting evidence

that U.S. growth is slowing.

Europe, meanwhile, started the year beaten down, relatively

cheap and heavily under-owned, so a bounce was always likely.

But the rebound is now accelerating thanks to the seismic

geopolitical shifts underway that appear to be sparking an

equally seismic shift in the continent's fiscal policies.

Stocks are surging on hopes of growth-boosting defense and

infrastructure spending, and a possible peace deal in Ukraine.

The euro and bond yields are now rising too, while the dollar

and Treasury yields are heading in the opposite direction.

Trump's agenda appears to be exacerbating the U.S. economic

slowdown. Could it even trigger a so-called 'Trumpcession'? A

recession still seems highly unlikely, but it's definitely on

investors' radar. More on that below.

But, first, here are some of today's key market moves.

-- Wall Street's main indices slump as much as 2.6% on signs of

continued U.S. economic weakness with U.S. President Trump

confirming that Canada and Mexico tariffs start on Tuesday.

* Bitcoin on a rollercoaster, surging 20% from

Friday's

low after Trump floats new U.S. strategic reserve that would

include crypto tokens, but sinks nearly 10% on Monday.

* U.S. yields fall, curve flattens following another weak

economic

indicator, this time the manufacturing ISM.

* Euro jumps 1% and euro zone yields rise sharply on

fiscal spending hopes and prospects for Russia-Ukraine peace

deal.

* German stocks rally 2.6%, the biggest rise since November

2022,

to close at a record high.

Atlanta Fed shock sounds 'Trumpcession' warning

"Trumpcession".

If you haven't heard the term before, you will now, as a

closely watched real-time U.S. economic weathervane is signaling

that GDP is shrinking at the fastest pace since the pandemic

lockdown.

The Atlanta Fed's 'GDPNow' model estimate for annualized

growth in the current quarter was a stunning -2.8% on Monday,

down from +2.3% last week. A month ago the model showed that

growth in the January-March period was tracking close to +4.0%.

These estimates are published regularly as new economic data

is released, and can be quite volatile. There were 11 in

February alone. Friday's shock reading of -1.5% was led by a

record-high $153 billion trade deficit in January, most likely

as firms front-loaded imports ahead of tariffs, and Monday's

decline was driven by soft manufacturing activity.

There's every chance -2.8% turns into a positive reading in

a few weeks.

True, the Atlanta Fed number is an outlier for now. The New

York Fed's equivalent 'Nowcast' real-time tracking model was

last revised on Friday to +2.9% annualized growth in Q1 from

+3.0%. And the Dallas Fed's 'weekly economic index' was showing

+2.4% on Feb. 27.

But the Atlanta Fed's 'GDPNow' real-time estimates are

historically the most reliable of these models, and the negative

figures didn't come out of nowhere. A lot of 'soft' economic

indicators, like sentiment surveys, have been extremely weak

recently, and some 'hard' economic activity indicators are

flashing red too.

Consumer sentiment in January slumped the most in three and

a half years, retail sales dropped by the most in nearly two

years, real spending fell at the fastest rate since early 2021,

and retail giant Walmart ( WMT ) has warned of a tough year

ahead. It's perhaps no surprise that Citi's U.S. economic

surprises index has slid into negative territory, hitting the

lowest point since September.

A common thread running through all of this is the huge

level of uncertainty being created by Trump's agenda: trade

protectionism, particularly tariffs; his apparent growing

closeness with Russia and distance from traditional allies like

Europe; and the 'DOGE' (Department of Government Efficiency)

scythe being taken to federal spending and employment.

NEGATIVE WEALTH EFFECT

Markets are certainly signaling there could be trouble

ahead. The Nasdaq has lost as much as 9% in 10 days, with 'Big

Tech' down even more. Investors are seeking the safety of U.S.

Treasuries: the two-year yield on Friday fell below 4.00% for

the first time since October, and the 10-year yield has tumbled

60 bps since mid-January.

These moves could matter to the real economy because of the

'wealth effect'. As Moody's' Mark Zandi noted recently, the top

10% of American households now accounts for around half of all

consumer spending. That's a record. They also own a lot of

stocks, and if Wall Street is heading south, they are more

likely to tighten their belts.

Economist Phil Suttle said he expected Trump's agenda to

weigh on the economy this year, but didn't expect it to have

such an apparently negative impact so quickly. But if the "blunt

and chaotic" implementation of Trump's spending and trade

policies hit growth harder than imagined, the Federal Reserve

may cut rates in the second quarter, Suttle reckons.

The Fed's rate-cutting cycle is on hold for now, largely

because of the uncertainty surrounding Trump's trade and fiscal

policies. But an impending "Trumpcession" probably wasn't on

policymakers' mind when they pressed the pause button. It likely

is now.

What could move markets tomorrow?

* U.S. tariffs on Canada and Mexico kick in

* New York Fed President John Williams participates in

Bloomberg

News event

* More PMIs from Asia, including Japan

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

I recommend to help you make sense of what happened in markets

today.

1. ECB may fear stumbling into stimulus: Mike Dolan

2. Critical minerals take center stage in world

politics:

Andy Home

3. EXCLUSIVE-Germany weighs special funds for

defense and

infrastructure, sources say

4. Trump threatens to lose patience as Europeans

float

proposals for Ukraine ceasefire

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

comments at . You can also follow me at [@ReutersJamie and

@reutersjamie.bsky.social.]

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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