By Jamie McGeeverORLANDO, Florida, June 25 (Reuters) - TRADING DAYMaking sense of the forces driving global marketsBy Jamie McGeever, Markets Columnist After two days of strong gains in world stocks amid the widespread relief over cooling Middle East tensions, relative stability was the hallmark of trading on Wednesday, with major asset classes moving in much narrower ranges. In my column today I look at U.S. foreign direct investment - was the sharp decline in the first quarter an anomaly, or a warning of what’s to come in the brave new tariff world? More on that below, but first, a roundup of the main market moves.If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.Fed’s Powell cautions against ending Fed power to pay interest on reservesU.S. current account gap clocks pre-2008 crash milestone: Mike DolanIsrael-Iran war highlights Mideast’s declining influence on oil prices: BoussoNATO commits to spending hike sought by Trump, and to mutual defenceU.S. exchanges, SEC in talks to ease public company regulationsToday’s Key Market MovesWorld stocks and the Nasdaq 100 hit new peaks for a second day in a row. The S&amp;P 500 slips, but is still very close to its record high.Some big moves in U.S. tech, with Super Micro Computer +8.8%, Nvidia +4.3% to a record high, AMD +3.6%, and Tesla -3.8%. Real estate is the biggest declining sector, -2.5%.Oil stops the rot, kind of, gaining nearly 1% on U.S. crude inventory drawdown and signs of strong U.S. gasoline demand.The dollar slips to fresh multi-year lows against the euro and sterling.Platinum up another 2.5% to new 11-year high above $1,350/oz. Now up 28% in June, on for its best month since 1986.Whirlwind fades, calm returnsThe MSCI All Country index and Nasdaq 100 touched new record highs for a second session, and Asian and emerging market stocks posted solid gains earlier in the day. But the Dow, U.S. small caps and benchmark European indexes all fell.The euro’s march higher is taking its toll, and European stocks have underperformed since the brief Israel-Iran war broke out on June 13. The euro on Wednesday rose for a fifth straight day to $1.1665, its highest since October 2021.Sterling hit its highest since February 2022 at $1.3670, and Britain’s FTSE 100 slipped to its lowest this month. Bank of England policymakers may be secretly cheering the pound’s rally, however, if it helps tame inflation pressures.The latest Citi/YouGov survey of UK consumers’ inflation expectations on Wednesday showed that long-term inflation expectations among the British public rose to the highest since September 2022.One sector faring better in Europe on Wednesday, though, was defense, after NATO leaders agreed big increases in defense spending, especially from Europe. U.S. defense stocks have moved in the other direction this week following the Iran-Israel ceasefire.On the policy and macro front, Fed Chair Jerome Powell’s second day of congressional testimony passed off without fireworks, although there were sparks in his exchanges with some lawmakers. He reiterated his view that the central bank is right to wait and see what the impact is from tariffs before considering further rate cuts.U.S. foreign investment slump - anomaly or warning?Much of the ‘de-dollarization’ debate has focused on foreign exposure to U.S. securities like stocks and bonds. But investors shouldn’t ignore foreign direct investment flows, the traditionally sticky capital that may also be sending out warning signals.Foreign direct investment typically involves an overseas entity acquiring the assets of a company in another country or increasing its holdings, often via the purchase of machinery, plants or a controlling stake. FDI is therefore considered a longer-term investment compared to portfolio flows, which can be more volatile.U.S. President Donald Trump says he has attracted record foreign investment into the country. Indeed, the White House has a page on its website with a “non-comprehensive running list of new U.S.-based investments” since Trump’s second term began. The running total is in the trillions of dollars and includes pledges from several foreign countries.Included are more than $4 trillion in U.S.-bound investments pledged by the United Arab Emirates, Qatar, Japan and Saudi Arabia. During Trump’s trip to the Middle East last month, he said the U.S. is on track to receive $12-$13 trillion of investments from countries around the globe, which includes “projects mostly announced … and some to be announced very shortly.”These flows may emerge in full, in time. But official figures on Tuesday showed that FDI in the first quarter actually fell to $52.8 billion, the lowest total since the fourth quarter of 2022. That’s well below the quarterly averages of the past 10 and 20 years.The Commerce Department figures also showed that the U.S. current account deficit widened to a record $450.2 billion in the quarter, or 6% of U.S. GDP, meaning FDI inflows barely covered 10% of that shortfall.Should the Trump administration be worried?<h3 id="ows31teah">TARIFF DISTORTIONS</h3>The short answer is probably not, at least not yet.FDI flows are typically far smaller than portfolio flows into equity and fixed income securities, so from the perspective of funding the current account deficit, the drop in FDI is not as pressing a concern.On the other hand, if foreign investors are also buying fewer U.S. securities, capital from elsewhere will be needed to fund that deficit.Additionally, America’s balance of payments data in the first quarter was hugely distorted by domestic consumers and businesses front-running Trump’s tariffs, loading up on imports before the duties kick in later this year.Trump’s bet is that the deficit will shrink this year and beyond as his ‘America First’ policies spur more “onshoring” from domestic firms as they bring production back home and the weakening dollar helps U.S. manufacturing by making exports more competitive. The subsequent boom will attract investment from companies and governments overseas. In theory.However, these dynamics work both ways.For example, the European Union is by far the largest provider of U.S. FDI, accounting for 45% of the total in 2023, according to Citi. The combination of the continent’s German-led fiscal splurge, U.S. tariffs and ‘de-dollarization’ concerns could easily crimp that flow, perhaps significantly.Another potential risk to U.S.-bound FDI is ‘Section 899’ - the possible tax of up to 20% on foreigners’ U.S. income that could be part of Trump’s budget plans. A Tax Foundation report in May found that Section 899 would “hit inbound investment from countries that make up more than 80 percent of the U.S. inbound FDI stock.”Industry pushback may water down Section 899, but it remains a cloud on the U.S. investment horizon.The U.S. is the world’s biggest recipient of FDI, with a 25% share of global volumes in 2023, up from around 15% before the pandemic, according to Citi. Its economy is the largest in the world, a thriving hub of innovation, pioneering technology, artificial intelligence and money-making potential.That will always attract FDI. Whether it attracts as much in this new environment remains to be seen.What could move markets tomorrow?Germany GfK consumer confidence (July)European Central Bank President Christine Lagarde, Vice President Luis de Guindos and board member Isabel Schnabel speak (at different events)Bank of England Governor Andrew Bailey and Deputy Governor Sarah Breeden speak (at different events)U.S. weekly jobless claimsU.S. durable goods (May)U.S. trade (May)U.S. GDP (Q1, final estimate)U.S. 7-year note auctionRichmond Fed President Thomas Barkin, Cleveland Fed President Beth Hammack and Fed Governor Michael Barr speak (at different events) Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. 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.US FDI inflows by country<figure class="image"><img src="https://pub.pbkrs.com/uploads/2025/1a9f372c8c34d0421928e858b5e18951?x-oss-process=style/lg" alt="" width="881" height="435" original-src="https://pub.pbkrs.com/uploads/2025/1a9f372c8c34d0421928e858b5e18951"/></figure>US FDI inflows slow sharply in Q1<figure class="image"><img src="https://pub.pbkrs.com/uploads/2025/a3d966541c1405a240c8ec9e24f733c0?x-oss-process=style/lg" alt="" width="619" height="436" original-src="https://pub.pbkrs.com/uploads/2025/a3d966541c1405a240c8ec9e24f733c0"/></figure>NATO members commit to 5% target<figure class="image"><img src="https://pub.pbkrs.com/uploads/2025/81379aadc48d3615e3d86b54ba9d1509?x-oss-process=style/lg" alt="" width="960" height="970" original-src="https://pub.pbkrs.com/uploads/2025/81379aadc48d3615e3d86b54ba9d1509"/></figure>(By Jamie McGeever; Editing by Nia Williams)

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Global markets experienced relative stability after two days of gains, with major asset classes moving in narrower ranges. The MSCI All Country index and Nasdaq 100 reached new record highs, while the S&P 500 slipped slightly. The euro and sterling rose against the dollar, impacting European stocks. Fed Chair Jerome Powell's testimony emphasized caution regarding tariffs and interest rates. A significant decline in U.S. foreign direct investment in Q1 raised concerns, with FDI falling to its lowest since late 2022, amidst ongoing discussions about the impact of tariffs and inflation expectations in the UK.

- Global markets experienced relative stability after two days of gains, with U.S. foreign direct investment (FDI) declining sharply in Q1, raising concerns about future trends amid tariff impacts.  
- The U.S. current account deficit widened to a record $450.2 billion, with FDI inflows covering only a small portion of this shortfall.  
- While the U.S. remains the largest recipient of FDI, potential risks from tariffs and tax proposals could affect future investment flows.

TRADING DAY-Whirlwind fades, calm returns