(The opinions expressed here are those of the author, a columnist for Reuters.)
What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets
The combination of an electronics tariff reprieve and dovish noises from the Federal Reserve have created a semblance of calm in financial markets, though the lingering trade war uncertainty means the respite probably won't last long.
I'll discuss all of today's market news below.
Today's Market Minute
* The Trump administration is proceeding with probes into imports of pharmaceuticals and semiconductors as part of a bid to impose tariffs on both sectors on national security grounds, Federal Register filings on Monday showed.
* The dollar held steady on Tuesday, trading near a three-year low against the euro and a six-month trough against the yen, as investors trying to make sense of the constant changes to President Donald Trump's tariffs remained wary of U.S. assets.
* LVMH shares sank on Tuesday after the world's largest luxury group posted first quarter revenue that undershot expectations as U.S. shoppers curtailed the purchase of beauty products and cognac and sales in China remained weak.
* South Korea announced on Tuesday an increase in its support package for the country's vital semiconductor industry to 33 trillion won ($23.25 billion), up about a quarter from a 26 trillion won package unveiled last year.
* Euro zone banks curbed firms' access to credit last quarter and expect to keep tightening credit standards due to increasing concerns about the economic outlook, the European Central Bank's lending survey showed on Tuesday.
Fed gives market a breather
Tech shares, including Apple, rallied on Monday after President Donald Trump excluded smartphones, computers and other electronics from his sweeping reciprocal duties on China, even while suggesting there would be an alternative tariff regime for the sector.
The move was Trump's second climb down since the April 2 tariff shock. It was welcomed as such by investors, but it does little to defuse the huge uncertainty over what happens next.
The Trump administration is now proceeding with probes into imports of pharmaceuticals and semiconductors and could potentially use national security grounds to impose tariffs there.
Even though the S&P 500 closed 0.8% higher on Monday, it remains 4% below levels present just before April 2's announcement and 8% down for the year to date. Implied volatility captured by the VIX remains above 30, almost 50% higher than historical averages.
Citigroup joined a string of brokerages, including Goldman Sachs and BofA, in slashing its S&P 500 target below the 6000 mark, with the bank's year-end target now at 5800, compared with a previous estimate of 6500. As it stands, that's still 7.5% above Monday's close.
However, investors were glad to see fears ease about stock market volatility seeping into the 'safe haven' Treasury market. Fed Governor Christopher Waller made dovish signals on Monday, suggesting the net impact of all the tariff hits would be negative for growth, with inflationary effects likely transitory.
"With a rapidly slowing economy, even if inflation is running well above 2%, I expect the risk of recession would outweigh the risk of escalating inflation, especially if the effects of tariffs in raising inflation are expected to be short lived," he said.
Waller's comments helped drag 10-year Treasury yields back as low as 4.35%, a quarter percentage point below the peaks of last week.
The New York Fed's consumer survey offered some support for the Fed governor's take on inflation, with one-year inflation expectations jumping to the highest in more than a year, while three- and five-year views remained steady or lower.
However, one-year inflation expectations in the University of Michigan's household survey for April rose to their highest since 1981. And an Reuters/IPSOS opinion poll shows 73% of respondents said they thought prices in the next six months would increase for the items they buy every day.
Other Fed officials indicated that it would be wise to stand pat for the time being, as the outcome of tariff policies obviously can't be measured if you don't know where that policy will actually end up.
"The fog has just gotten really, really thick," Atlanta Fed President Raphael Bostic said.
The bond yield retreat kept the dollar on the back foot, even with interest rate cuts expected from the European Central Bank and the Bank of Canada this week.
Sterling was the outperformer, rising to its strongest levels in six months against the dollar.
Overseas stocks in Asia and Europe were generally firmer, even though luxury-sector bellwether LVMH dropped 7% after its latest update said sales in China were weak and U.S. shoppers had cut spending on beauty products in the first quarter.
U.S. stock index futures were basically flat before Tuesday's bell.
Finally, check out my column today, where I explore rising speculation about repatriation of European savings from wobbling U.S. markets and how those investment flows could underwrite the huge fiscal boost that Germany and the rest of Europe hopes will revive the region's economy.
Chart of the day
Apple has found itself at the centre of Donald Trump's trade war storm over the past week. It had been scrambling to contend with potentially brutal tariff rises on its Chinese production lines. This included chartering cargo flights to ferry some 600 tons of iPhones, or as many as 1.5 million, to the United States from India in the process. The crunch may be one reason Trump exempted many electronics, including smartphones, from his sweeping reciprocal duties on China.
First quarter data just released shows Apple took the top spot for global smartphone sales on the back of the iPhone 16e's launch and strong demand in countries such as Japan and India, data from Counterpoint Research showed on Monday. Apple had 19% of the smartphone market, despite flat or declining sales in the U.S., Europe and China, followed by Samsung with 18% of the market.
Today's events to watch
* New York Federal Reserve's April manufacturing survey, U.S. March import/export prices; Canada March CPI inflation
* Federal Reserve Board Governor Lisa Cook and Richmond Fed President Thomas Barkin speak; European Central Bank President Christine Lagarde speaks
* US corporate earnings: Bank of America, Citigroup, PNC, Omnicom, Johnson&Johnson, United Airlines, JB Hunt
* China's President Xi Jinping visits Malaysia and Cambodia
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 Dolan; Editing by Anna Szymanski)
