By Mike Dolan

LONDON (Reuters) - What matters in U.S. and global markets today

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

The bigger the buildup to an event, the greater the risk of disappointment. Wednesday’s much-heralded U.S. tariff announcements might not live up to the hype, but even if they do, this is not going to be the end of the matter, and the market reaction won’t be cut and dried either.

I’ll discuss how markets are reacting in advance of the big reveal and then explore the risk investors should be focusing on right now. Hint, it’s not a tariff surprise today.

Today’s Market Minute

* U.S. President Donald Trump is poised to impose sweeping new reciprocal tariffs on global trading partners today, upending decades of rules-based trade, threatening cost increases and likely drawing retaliation from all sides.

* Drugmakers are lobbying to Trump phase in tariffs on imported pharmaceutical products in hopes of reducing the sting from the charges and to allow time to shift manufacturing, according to this Reuters exclusive.

* Reuters takes a look at past examples of eras dominated by tariffs and at how they’ve affected prices and trade.

* The U.S. administration is planning an executive order that would loosen the rules around exports of military equipment, just as Europe is rearming at the fastest pace in at least 80 years, according to four sources familiar with the discussions.

* One of the world’s largest auto part suppliers is preparing for Trump’s tariffs by "controlling the uncontrollable" as the industry faces a seismic shakeup.

Trouble with a capital ’T’

The timing of the Rose Garden set piece laying out Donald Trump’s long-awaited trade strategy is now pencilled for 4 p.m. Eastern Time today.

Various reports have circulated indicating that Trump will be announcing 20% across-the-board import tariffs, but other reports have talked of a tiering system. No one, including financial traders and investors, seems fully sure of what is coming.

Perhaps prepping for all outcomes, Wall Street stocks rose slightly on Tuesday as the second-quarter got underway, though they still underperformed their European peers. But S&P 500 futures gave back those gains overnight, and most world markets were slightly in the red on Wednesday.

The VIX "fear index" was around 22, above historical averages but still well shy of the 7-month high near 30 set a month ago.

Whatever the outcome later today, there is likely to be a wave of retaliatory tariff measures, which have been less discussed in analyses of the potential worldwide impact of the U.S. tariffs.

ISM’s March manufacturing readout on Tuesday showed U.S. factory activity slipping back into contraction last month, with price expectations surging. And job openings fell in February, a nervy start to the week’s big labor market updates.

March payrolls are coming on Friday, and the ADP private sector job tally is due later today.

While the futures markets continue to price in three Federal Reserve interest rate cuts this year, it’s interesting that five are priced by July next year despite the tariff-related inflation jitters. That would take the policy rate back to where Fed officials see the long-term neutral rate.

Treasury yields were a touch higher early Wednesday, however, and the dollar index was a tad weaker.

In other non-tariff political news, Wisconsin voters elected Susan Crawford to the state Supreme Court, maintaining the court’s 4-3 liberal majority in a setback for Trump and his billionaire ally Elon Musk, who had backed her conservative rival.

In better news for the administration, however, Republican candidates are projected to win two special elections in Florida, which would boost the party’s slim majority in the House of Representatives by filling vacancies created by Trump’s picks for cabinet posts.

And now I’ll turn back to tariffs to explain why a "crash, bang, wallop" surprise today is not the risk investors should be most worried about.

Tariff shock less worrying than slow burn

The still mysterious U.S. tariff sweep coming on Wednesday makes it tough for investors to see much beyond this week, but the real risk is more of a slow-burning U.S. market decline on some open-ended plan - seeding months more of uncertainty rather than a cathartic one-off.

Most medium-range market forecasting has simply been abandoned over the past week, as strategists have no tariff baseline to work with. Guesswork has ensued for the most part, while a lousy quarter-end funk descended on Wall Street and implied volatility gauges crept higher.

The size, shape and duration of the tariffs are all unknown, and the breadth of countries affected remains up in the air.

If the big announcement on Wednesday does come as some "crash, bang, wallop", that could at least clear the air on Wall Street, which has been on tenterhooks over the issue all year.

In fact, analysts looking at the elevated but relatively contained pricing of stock index volatility suggest that there’s little left to come out on Wednesday that truly surprises and pushes those gauges up much further.

Maxwell Grinacoff, head of equity derivatives research at UBS, made the case on Tuesday that tariffs were now well priced into the S&P 500 index and that investors had substantially "derisked" in March by selling equities in lieu of hedging.

This trend led to sharp equity price declines, but a more modest reaction in "vol", especially when compared to some of the periodic spikes in the "fear index" seen during the bull market of recent years.

"Volatility is now having its ’dirty-shirt’ effect – it’s already stained, so a little more ’mud’ won’t do much else," wrote Grinacoff, adding that VIX levels were likely to remain range-bound around 20 as a result.

MARKET LAUNDRY

The prospect of the tariffs announcement on Wednesday clearing the decks then could be considered a positive, but only if you’re generally bullish about the U.S. economic outlook.

"We think the potential for even higher volatility from here is thus limited," Grinacoff added. "Unless the U.S. falls into recession territory over the coming months/quarters - albeit not our base case."

Absence of recession is a big caveat.

Goldman Sachs joined JPMorgan this week in arguing that the chance of recession in the U.S. over the next 12 months has risen markedly. Goldman gives it slightly more than a one-in-three chance, a tick below the 40% JPMorgan now sees.

What’s more, GDP models are already indicating a first-quarter contraction. The Atlanta Fed’s headline "GDPNow" forecast is pointing to a whopping 3.7% annualized shrinkage of national output in the first three months of this year. Some of that is clearly distorted by gold imports, but the Atlanta Fed’s gold-adjusted estimate is now clocking a contraction of 1.4%.

High-frequency data on Tuesday did little to brighten the mood. ISM’s manufacturing survey for March showed the factory sector slipped back into contractionary territory, and falling job openings suggest cracks are appearing in the once-watertight labor market.

And no matter what happens this week, markets are still likely to face lingering doubts about the trade war endgame and the unknowable lagged effects of the import levies on prices, demand, hiring and activity. So it’s hard to see how the tariff boil gets lanced this week.

Trump’s administration retains the right to extend, hike, postpone or even cancel the tariffs as part of its high-pressure dealmaking on a range of thorny issues with both allies and rivals.

And it is also impossible to know how the rest of the world will react and retaliate to the U.S. actions, a factor in the looming trade war that is often underplayed.

So economists should have more to work with after Wednesday, but crystal clarity may be stretching it.

And it’s this long-term uncertainty and gradual economic weakening - a slow burn - that may be truly corrosive for already bruised and still expensive equity markets.

Chart of the day

We’re seeing the perfect storm that gold buyers have dreamt of for years - well, almost 40 years. Trade wars, military tensions, broken Western alliances, inflation concerns, recession fears and doubts about the dollar’s dominant role in world finance: The combination of all this has seen gold zoom nearly 20% so far this year to an all-time high of $3,148 per ounce. It’s been its best quarter since 1986.

And this time around U.S. protectionism and isolationism are also in the mix. With tariff walls and military spending rising and the spectre of "stagflation" lurking in the background, central banks around the world have boosted gold holdings at the margins as part of their precautionary reserve building.

Today’s events to watch

* White House makes announcement on ’reciprocal’ trade tariff plan, expected around 4pm Eastern Time

* U.S. ADP March private sector payrolls, February factory goods orders

* Federal Reserve Board Governor Adriana Kugler speaks; European Central Bank President Christine Lagarde and ECB chief economist Philip Lane both speak

* European Union defense ministers meet in Warsaw

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)