The opinions expressed here are those of the author, a columnist for Reuters.

By Mike Dolan

March 10 - Morning Bid U.S.

What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

If markets believed Donald Trump would pause his disruptive economic plans at the first sight of a growth downturn or a stock market tantrum, they may have to think again.

Although Commerce Secretary Howard Lutnick flatly ruled out a recession in an interview on Sunday, the President declined to make a prediction either way and insisted some turbulence was inevitable.

"There is a period of transition, because what we're doing is very big," Trump told Fox News. "It takes a little time, but I think it should be great for us."

The stock market has been unnerved recently, with uncertainty about sweeping trade tariffs and concerns about government spending and job cuts undermining business and consumer confidence.

The S&P 500 .SPX lost another 3.1% last week, with the tech heavy Nasdaq .IXIC down 3.45% and the Dow Jones blue chips .DJI off 2.4%. The Russell 2000 Small Cap index .RUT fell 3.9%.

"He's not going to step off the gas," Lutnick said on NBC's "Meet the Press", referring to Trump's determination to push ahead.

U.S. stocks stabilized somewhat after the February employment report on Friday showed a pick up in jobs and Federal Reserve Chair Jerome Powell said the economy was holding up so far. But jobs numbers did little to dispel fears of a softening labor market, and Powell merely reaffirmed that the Fed will be on hold for the foreseeable future.

Stock futures ESc1 were in the red again first thing on Monday, Treasury yields US10YT=RR slipped again and the dollar clawed back some of last week's steep losses.

Overseas, Chinese markets .CSI300 were jarred by weekend data showing a surprise return of consumer price deflation. European stocks are off too.

In other news, Canada's dollar CAD= was a touch firmer after former Bank of Canada and Bank of England governor Mark Carney won the race to be the country's new Prime Minister.

Today I'll take a look at how hyperactive government policy is sidelining central banks. After years in thrall of monetary policy, investors may now have to look elsewhere for direction.

Today's Market Minute

• President Donald Trump declined to predict whether the U.S. could face a recession in an interview published Sunday amid stock market concerns about his tariff actions on Mexico, Canada and China.

• China's consumer price index in February missed expectations, falling at the sharpest pace in 13 months as producer price deflation persisted. Seasonal demand has faded and households remain cautious about spending amid job and income worries.

• Former central banker Mark Carney won the race to become leader of Canada's ruling Liberal Party, official results showed on Sunday. He will take over at a tumultuous time, with Canada in the midst of a trade war with the United States.

• European Union finance ministers are discussing on Monday how to increase defence spending through new joint borrowing, existing EU funds and a greater role for the European Investment Bank, the Polish EU presidency said.

• Finally, U.S. job growth picked up in February, Friday data showed, but cracks are emerging in the once-resilient labor market as chaotic trade policy and deep federal government spending cuts threaten to disrupt economic growth this year.

Central banks slip into the shadows

Central banks have long been the lead policy actors in world markets and economies, but they are stepping back into supporting roles as governments grab the limelight.

In less than two months, the avowedly disruptive new U.S. administration has prompted a dramatic re-casting of the global economic script, upending economic forecasts and cross-border investment flows around the world.

The sweeping trade wars Donald Trump's government has unleashed and the fracturing of decades-old U.S. political and military alliances have forced a generational shift in German and European fiscal policy, while encouraging China to step up stimulus measures to meet its restated and now ambitious 5% growth goal.

But the scale of trade uncertainty has unnerved U.S. businesses and shaken household confidence, with U.S. downturn fears amplified by the slashing of government jobs and ructions on Wall Street.

Caught in the fog, the Federal Reserve can barely make an accurate forecast for what's going to happen next week - never mind feel confident about predicting where the economy and inflation might be when any interest rate change hits home some 12 months hence.

It's a good bet the Fed will sit on its hands for a while longer while it fathoms it all out. Fed Chair Jerome Powell said as much in his speech on Friday.

But even reading incoming data has gotten a lot harder. For example, this week's inflation update will of course be watched closely, but last month's consumer prices won't shed any light on the potential impact of the proposed tariffs coming down the pike.

Even before the end of the first quarter, investors are being forced to rip up the year's plans already and a Fed likely on hold for a lot longer is not what to watch for what happens next.

"The more benign macroeconomic backdrop that investors had in mind going into 2025 has arguably been shattered," reckons AXA Investment Managers' Chris Iggo. "The U.S. administration's challenges to the global trading and security order have the potential to disrupt trade, capital flows, consumption, investment spending and government policy."

"Investors now face ambiguity over economic growth, inflation, interest rates, and long-term borrowing costs – not to mention political risk."

WHATEVER IT TAKES: FISCAL VERSION

The growing dominance of fiscal policy is even more apparent in Europe.

The European Central Bank cut interest rates again last week, while offering marginally hawkish statements about its plans as it too re-maps the shifting macroeconomic landscape.

But for financial markets, Thursday's ECB move was almost a sideshow to the dramatic fiscal changes in Germany, which announced plans for nearly a trillion euros in defense and infrastructure spending, reinforced by plans for wider European joint borrowing.

Opinions differ widely about how much further the ECB's policy rate will fall during this cycle, but it's another decent bet the central bank will hold the policy line until June at least, or until it sees how some of these fiscal plans play out.

But even if the ECB wants to stall here given the potentially huge impact of new government spending promises on domestic growth and debt, it also has to consider the implications of Trump's increasingly erratic trade threats as April's "reciprocal" U.S. tariff plans hit Europe directly.

Will the ECB see this as a reason to ease again? It almost certainly doesn't know the answer to that yet.

And, in truth, a cut here or there likely won't matter much. The combination of continental rearmament, the lifting of Berlin's self-imposed "debt brake", and the re-engineering of euro budget rules will pack a far bigger punch than any marginal tinkering in borrowing rates.

The euro EUR= certainly seems to think so. It batted away last week's rate cut, clocking its biggest weekly gain on the dollar in 16 years.

Global equity markets also paid little heed to the ECB, as the Transatlantic capital shift from pricey U.S. tech stocks to far cheaper European industrial and defence sectors continued to unfold.

DRIVING SEAT

It's not that central banks no longer have power to move markets by changing the cost of money. It's just that calculations about what such actions would mean for economies and markets are now much more heavily influenced by fiscal policy forces.

All this may keep monetary policymakers in the wings for much of the year, relegating their prognostications to slightly "beside the point" in the process.

"Fiscal policies will be the primary driver of almost everything that matters to investors," currency fund manager Stephen Jen said last week. "Central banks will only react to these policies and can no longer dictate where the markets go. Bond yields will drive equities and currencies."

The "be all and end all" for market thinking for decades, central banks suddenly - and perhaps deliberately - figure well down the credit roll.

Chart of the day

Even though U.S. February payroll tallies came in close to expectations, the employment report included signs that the labor market is softening. The number of people working part-time for economic reasons rose 460,000. That's the biggest monthly rise since June 2023. It brings the total to 4.9 million, the highest since May 2021. As a result, a broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, jumped to 8.0%. That was the highest since October 2021.

What's more, multiple job-holders shot up to 8.860 million from 8.764 million in January. They represented 5.4% of the employed, the highest share since April 2009.

Today's events to watch

* US February employment trends, New York Federal Reserve February consumer expectations survey

* Euro zone finance ministers meet in Brussels to discuss regional fiscal stance, defence spending, budget challenges; European Central Bank President Christine Lagarde and ECB board member Piero Cipollone attend

* Ukrainian President Volodymyr Zelenskyy travels to Saudi Arabia to meet Saudi Crown Prince Mohammed Bin Salman

* US corporate earnings: Oracle

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.

(By Mike DolanEditing by Anna Szymanski; mike.dolan@thomsonreuters.com)

((mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters Messaging: mike.dolan.reuters.com@thomsonreuters.net/))