Glum end to markets week as tariffs loom

A look at the day ahead in U.S. and global markets from Mike Dolan

It's Friday, so today I'll provide a quick overview of what's happening in global markets and then offer you some weekend reading suggestions away from the headlines.

Today's Market Minute

* Britain's Heathrow Airport was shut on Friday after a huge fire at a nearby electrical substation knocked out its power, disrupting flight schedules around the world.

* President Donald Trump said on Thursday the United States will sign a minerals and natural resources deal with Ukraine shortly and that his efforts to achieve a peace deal for the country were going "pretty well" after his talks this week with the Russian and Ukrainian leaders.

* Motorists have traded in a record number of Tesla electric vehicles this month, Edmunds data showed, amid a wave of protests against CEO Elon Musk's work as an adviser to U.S. President Donald Trump.

* Japan's core inflation hit 3.0% in February and an index stripping away the effect of fuel rose at the fastest pace in nearly a year, a sign of broadening price pressure that reinforces market expectations of further interest rate hikes.

* Germany's Bundesrat upper house of parliament is set to vote on Friday on a spending splurge aiming to revive growth in Europe's largest economy and scale up the military for a new era of European collective defence.

Markets end week on glum note as tariffs loom

World markets turned gloomy again on Friday, now that the week's big central bank meetings have passed and April's planned U.S. tariffs have moved front and center.

The week's main economic data releases were fairly benign, with existing home sales for February and weekly jobless claims showing no major disruptions.

The Philadelphia Federal Reserve's March business survey showed sentiment ebbing, though by less than forecast. New orders readings fell sharply, however, and prices paid jumped.

But with much uncertainty about what lies ahead, the investment mood remains downbeat and upcoming first quarter corporate earnings and guidance may be a nervy affair.

FedEx dropped 5% overnight after it cut its full-year profit and revenue forecasts, with the parcel delivery giant fretting about tariff-related impacts and "continued weakness and uncertainty in the U.S. industrial economy".

Micron Technology's revenue beat on strong demand for AI-related chips struck a more positive note, bumping its shares up 2% in after-hours trading.

But S&P 500 futures were in the red overall first thing on Friday after clocking another down day yesterday. Treasury yields were slightly lower, and the dollar was broadly firmer.

Overseas markets were in the red too, with Europe impacted by a disruption to travel stocks after a fire near London's Heathrow airport shut down traffic for all of Friday.

Germany's upper house of parliament is set to vote on Friday on a spending boost aimed at reviving growth in Europe's largest economy and scaling up the military for a new era of European collective defence.

Chinese stocks lost more than 1%, but Japan's Topix index ended the day at an eight-month high as banks gained on the country's above-forecast inflation data.

Meanwhile, Turkey's markets remained under pressure. Trading on the Istanbul bourse was halted for a second time on Friday as a market-wide circuit breaker kicked in after heavy declines of up to 7%.

Turkey's lira, stocks and bonds have weakened sharply since Wednesday when authorities detained Istanbul Mayor Ekrem Imamoglu, who is widely considered the main political rival of President Tayyip Erdogan. Protests erupted and thousands marched nationwide.

Turkey's central bank sold $10 billion in foreign currency, according to economists' calculations, following the lira decline.

Weekend reading suggestions

Here are some articles away from the day-to-day headlines that you may find interesting.

* Shot by both sides? With fresh murmurs about a challenge to Federal Reserve independence, economists Pei Kuang, Michael Weber and Shihan Xie examine how political polarisation affects public attitudes toward the Fed and inflation expectations.

* Beneath the gloomy seas off southern England, 400 million mussels encrust ropes hanging from buoys dotted over an area the size of the country’s biggest airport. But, as Reuters Kate Holton reports, they're not immune from Britain's alarming sewage overspill and are just one example of a problem that's now difficult to control.

* Seismic geopolitical shifts are challenging many standing economic assumptions - nowhere more than in the energy world. Carlyle strategists Jeff Currie and James Gutman write about "The New Joule Order". Driven by the quest for security, nations are creating a diversified energy mix of joules across multiple sources from renewables to nuclear and carbon.

* 18th century blues. U.S. President Donald Trump invoked the Alien Enemies Act of 1798 in a proclamation made public last Saturday as part of his pledge to deport millions of people who are in the country illegally. Reuters' Tom Hals explains what the act is and how it has been used in the past.

* How should we read the dollar's retreat and understand a potential 'Mar-a-Lago Accord'? Two articles on Project Syndicate this week tackle these subjects head on. Former chairman of Goldman Sachs Asset Management Jim O'Neill wonders if this year's dollar slide will prove to be more than a cyclical recoil and Harvard Professor Jeffrey Frankel tries to make sense of 'Plaza II' speculation.

* Big Tech faces Big Power. Reuters Tim McLaughlin examines the growing demands on the U.S. grid from the datacenter boom. Data Center Alley, a 30-square-mile stretch outside Washington D.C., is home to more than 200 data centers and consumes roughly the same electricity as Boston. So power company officials were alarmed when a big chunk of those centers suddenly dropped off the grid one day last summer and switched to on-site generators.

* The Organisation for Economic Cooperation and Development's latest forecasts show how Trump's tariff hikes could slow growth in Canada, Mexico and the United States while driving up inflation. The Paris-based OECD also pointed out this week that outstanding government and corporate bonds globally exceeded $100 trillion last year, adding that funding the net-zero emissions transition would be an "immense challenge". If new investment needed for the transition is financed publicly, that could send debt-to-GDP ratios 25 percentage points higher in advanced economies by 2050 and 41 points higher in China, the OECD said.

Chart of the day:

The U.S. current account deficit narrowed slightly in the fourth quarter of 2024, according to data out on Thursday. But this may be a temporary blip as trade numbers for January have already shown the goods deficit exploded to record levels early this year. Trade numbers have become a bit challenging to interpret, however, with imports likely jumping to frontrun tariff increases, while huge imports of gold bars are also believed to have pushed up the number.

This matters because these distortions will affect Q1 GDP calculations. Some GDP models are signalling a sharp contraction for the current quarter as a result of the widening net trade gap. However, many economists assume the gold factor is fleeting and will be removed from official data.

Today's events to watch:

* Canada February house prices, January retail sales

* New York Federal Reserve President John Williams speaks; European Central Bank policymaker Jose Luis Escriva speaks

* US corporate earnings: Carnival

(By Mike Dolan, editing by Anna Szymanski; mike.dolan@thomsonreuters.com)