A look at what matters in U.S. and global markets today from Mike Dolan, Editor-At-Large, Finance and Markets
World markets are getting nervy again on the back of fresh salvos in Washington's trade war, a striking slide in the U.S. dollar in Asia and an unexpected political twist in Germany.
I'll dive into all of the market-moving news below.
Today's Market Minute
* German conservative leader Friedrich Merz failed to secure enough parliamentary votes to become chancellor on Tuesday in a major blow that threw politics in Europe's largest economy once more into disarray.
* Chinese travellers' spending rose 8% year-on-year during the May Day holiday, but was still off pre-pandemic levels, while the country's services activity expanded at the slowest pace in seven months in April.
* The dollar struggled to make headway on Tuesday as an unprecedented two-day surge in its Taiwanese counterpart spilled over to other regional peers and highlighted the fragility of the U.S. currency.
* Warren Buffett will stay on as chairman of Berkshire Hathaway after Vice Chairman Greg Abel takes over as chief executive officer. Shares of Berkshire closed down about 5% on Monday.
* Saudi Arabia has signalled it is willing to enter a painful price war to assert dominance over other oil producers, but worsening global economic conditions mean the kingdom's standard playbook might be less effective this time around. Check out the latest from Reuters' columnist Ron Bousso.
Asia FX rattles and Merz stumbles
Wall Street stock indexes (.SPX) broke a nine-day winning streak on Monday, and futures remain in the red ahead of today's open, with fresh anxiety seeping in as the Federal Reserve kicks off its two day policy meeting later on Tuesday.
The recent market recovery had hinged in part on investor hopes for a measure of trade detente between the U.S. and China after Beijing last week said it was evaluating an offer from Washington to hold talks over tariffs.
But that trail seems to have gone cold, and market focus has instead shifted to an unexplained 10% surge in Taiwan's dollar on Friday and Monday. Upward pressure on other Asia currencies such as Hong Kong's dollar is generating chatter about whether dollar depreciation will be a central part of Washington's trade negotiations.
While holidays across Asia on Monday may have exaggerated these moves somewhat, speculation is rising about whether some regional governments may be backing away from U.S. currency and bond holdings.
The Hong Kong Monetary Authority said on Tuesday that is has been reducing duration of its Treasury holdings and diversifying into other currencies and assets.
With no new breakthrough in bilateral trade talks in the mix, the fallout from the upheaval remained front and centre as U.S. corporate earnings season continues.
And President Donald Trump opened new fronts in the tariff war by saying he would impose a 100% tariff on all movies produced outside the U.S., though he gave few details on just how such a levy would work. Netflix, Amazon and Paramount Global all fell about 2% on Monday as a result.
Moving to Europe, German (.GDAXI) and euro zone stocks (.STOXX) fell back more than 1%, and German bond yields dipped after German conservative leader Friedrich Merz failed to secure enough parliamentary votes to become chancellor in a blow that could throw politics in Europe's largest economy into disarray.
Merz, who led his CDU/CSU conservatives to a federal election victory in February and signed a coalition deal with the centre-left Social Democrats, won just 310 votes in the secret ballot in the Bundestag - six short of an absolute majority.
Although the surprise outcome raises concerns about the transformative economic plans promised by Merz, the Bundestag has 14 days to elect him or another chancellor, and he's still expected to get through eventually. The euro was steady as a result.
Chart of the day
Whether due to tariff-related negotiations or "malevolent people", a 10% two-day leap in Taiwan's dollar to its strongest level in more than two years has set off a flurry of speculation about whether America is seeking selective devaluations of the dollar against trading partners in Asia and elsewhere as a pre-condition for holding off on steep import tariff increases.
Taiwan's president denied the speculation, claiming exchange rates formed no part of last week's trade talks in Washington, and its central bank has shored up the local currency today. But regional currency markets continued to rumble on Tuesday, unnerved by a surge in China's offshore yuan on Friday to its highest since the U.S. election.
Hong Kong's pegged dollar tested the stronger end of its trading band, prompting the Hong Kong Monetary Authority to buy $7.8 billion to keep a lid on it. Trade talks aside, a related concern is that Asian central banks are backing away from U.S. investments and Treasuries. The HKMA said on Tuesday it has been reducing duration of its Treasury holdings and diversifying into other currencies and assets.
Today's events to watch
* U.S. Federal Reserve's Federal Open Market Committee starts its two-day policy meeting, decision Wednesday
* U.S. March international trade balance, New York Fed's April global supply chain pressure index; Canada March trade balance
* Canada's Prime Minister Mark Carney meets US President Donald Trump at White House
* Bank of England Deputy Governor Sarah Breeden speaks
* U.S. corporate earnings: Advanced Micro Devices, Super Micro, Mosaic, Marathon, Duke Energy, Devon Energy, Wynn Resorts, Marriott, Global Payments, International Flowers & Fragrances, Arista Networks, Fidelity National Information Services, Waters, Gartner, Progressive
* U.S. Treasury sells $42 billion of 10-year notes
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.
