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 U.S trading day is ending and Asia's morning is getting started.

By Jamie McGeever

ORLANDO, Florida, March 4 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

Tariff Tuesday. Trade war Tuesday. Turbulent Tuesday. Whatever you call it, U.S. President Donald Trump's increased duties on imports from three of America's biggest trading partners have now kicked in, and world markets are in a spin.

But if the tariffs on Canada, Mexico and China, and counter measures from Beijing and Ottawa, cast dark clouds over markets, shafts of light emerged from Europe, where huge fiscal packages of historic proportions could soon be drawn up.

News from Berlin just before the Wall Street close of a possible 500 billion euro ($530.80 billion) German infrastructure fund followed an earlier proposal from Brussels for up to 150 billion euros for EU nations, that could form part of an 800 billion euro package.

These are game-changing sums. The euro leaped to a three-month high above $1.06 and analysts at Deutsche Bank changed their euro forecast, issuing a bullish recommendation targeting a rise to $1.10.

Is Europe's recovery firmly in motion? More on that below.

Meanwhile, hopes of a Russia-Ukraine ceasefire may be picking up again, with sources telling Reuters that Washington and Kyiv are poised to sign the much-debated minerals deal.

In Asia, attention on Wednesday turns to China's National People's Congress, where Beijing is expected to maintain its economic growth target at roughly 5% and announce a budget deficit of 4% of GDP.

Today's Key Market Moves

• U.S. stocks fall , slammed by escalating trade tensions then cutting losses on the German spending news. The S&P 500 ends down 1.3%, the Nasdaq down 0.3%, and the Dow down 1.6%

• Safe-haven assets gold, Japanese yen and Swiss franc all rose, with gold back above $2,900/oz.

• The front end of the Treasuries curve ended higher, but longer-dated bond prices fall on the German news.

• Implied volatility gauges rise - the VIX index hits its high for the year above 25.00, and the MOVE index of Treasury vol hits a 4-month high.

• U.S. high yield corporate spreads look set to break out of their recent range, poised at 294 basis points, the widest of the year.

• Oil slides to a 6-month low on global demand fears. Citi analysts predict Brent crude could fall as low as $60/bbl.

'America First' brightens European outlook

The divergence between U.S. and European stocks this year was epitomized by the perfect symmetry in their opposing fortunes on Monday: Germany's DAX surged 2.64%, while America's Nasdaq slumped 2.64%.

This stark deviation really started taking root in January – not coincidentally, right around U.S. President Donald Trump's inauguration. A rebound in battered European assets just needed a trigger, and ironically, the chaotic implementation of Trump's "America First" agenda appears to have provided it.

Investors initially cheered Trump's election platform of tariffs, deregulation, tax cuts, reduced federal spending, and disdain towards multilateral institutions.

Big Tech lifted Wall Street to new peaks in early 2025, and the dollar and Treasury yields kept rising. But as the potential for a fully-fledged trade war rose, sentiment started to shift dramatically.

Meanwhile, Europe's security vulnerabilities were starkly exposed, as Washington's stance on the Ukraine-Russia war tilted toward Moscow. Vice President JD Vance's Munich speech and Trump's public slapping down of Ukrainian President Volodymyr Zelenskiy have appeared to shred U.S.-European relations, raising existential doubts over NATO.

None of that sounds particularly positive for Europe. But the past six weeks have kicked the continent into coordinated action that could see Germany create a 500 billion euro infrastructure fund and the European Union mobilize close to 1 trillion euros for defense, security and infrastructure.

That's the level of growth-boosting spending that many analysts have been urging Europe to pursue for decades. If it materializes, it would be a game-changer.

TABLES HAVE TURNED

So the 'U.S. exceptionalism' narrative is fading and being replaced by the European recovery story.

"When you get a meaningful correction in risk assets from U.S. policy instability, that naturally translates into the relative outperformance of unloved assets," like Europe, notes Benn Eifert, managing partner at San Francisco-based hedge fund QVR Advisors. "There's much, much more room to go."

It won't be a linear move. Europe's growth is fragile, the region is likely to come under Trump's tariff line of fire soon, and Germany's Dax recoiled 3.5% on Tuesday - its steepest fall in exactly four years - as trade war fears rattled global markets.

But the bullish U.S./bearish Europe dance that markets have led over the last few years looks to be over. Allocations to the U.S., the 'American exceptionalism' narrative, and Wall Street valuations simply became too extreme. Unloved, under-owned Europe was the negative mirror image.

So the tables are turning now.

The gap between Citi's euro zone and U.S. economic surprises index is close to the widest and most euro-positive in two years. And the gap between year-ahead annual growth forecasts for the U.S. and EU, which was a full percentage point recently, according to Morgan Stanley economists looks set to shrink.

Capital is flowing accordingly. After years of near-consistent outflows, European equity funds are drawing in the biggest inflows since 2022, Bank of America figures show, and the record inflows into U.S. equity of last year are drying up.

These are historic times. America's security backstop for Europe and commitment to free trade are no longer givens. And we could be about to see the biggest shift in global trade relations since the collapse of Bretton Woods, and most dramatic shift in German fiscal policy since re-unification.

No one knows how things will play out, but right now Europe looks to be benefiting from this 'America first' administration more than many would have thought. Maybe even more than the U.S.

What could move markets tomorrow?

• Euro zone producer price inflation (January)

• U.S. ADP private sector employment (February)

• China services PMI (February)

• Bank of Japan Governor Kazuo Ueda speaks

• Bank of England Governor Andrew Bailey answers questions from UK lawmakers

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. Low US policy visibility equals big economic trouble: Dolan

2. Target braces for first-quarter profit pressure due to tariffs, low demand

3. "Beyond fundamentals": is Europe's arms race priced in?

4. Musk rallies the far right in Europe. Tesla is paying the price.

5. What China can teach Europe about geopolitical independence

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. 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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($1 = 0.9420 euros)

(Writing By Jamie McGeeverEditing by Bill Berkrot)

((jamie.mcgeever@thomsonreuters.com; Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net))