Business

Corporate profits are rolling over again.

Two years ago, corporations posted their first year negative profit growth since the Great Crisis. We had a bounce from those depressed levels, which suckered a lot of investors into believing that fundamentals were improving.

That period is now ended. Year over year profits are rolling over HARD.

Why does this matter? After all, corporate profits have rolled over several times in the last few years… and the markets kept blasting off to new highs.

With first the Fed, and then the ECB and BOJ, all expected to start reducing their balance sheets over the next two years, a bevy of central bankers has been busy on the jawboning circuit, explaining why this would not have a major impact on either bond yields or stocks.

US home prices (in the 20-city Case-Shiller universe) rose at 5.89% YoY - the strongest growth since July 2014.

This has pushed the national home price index to new record highs...

Perfect time to hike rates and deflate yet another bubble?

The 3-6 month lag effect of rate moves on home prices is looming.

Having weakened to unchanged for the last two months, April saw personal spending rise 0.4% MoM (as expected) and personal income rise 0.4% MoM (as expected). However, year-over-year growth in spending (+4.3%, weakest since Sept 2016) and income (+3.6%, weakest since Jan 2017) both signaled a rolling over of the post-Trump exuberance (just in time for another rate-hike by the The Fed).

Major (upward) revisions to spending data seems to have exaggerated April's demise...

But, this is not what The Fed (nor Trump) was hoping for.

Tuesday's session started off on the back foot, with the Euro first sliding on Draghi's dovish comments before Europarliament on Monday where he signaled no imminent change to ECB’s forward guidance coupled with a Bild report late on Monday according to which Greece was prepared to forego its next debt payment if not relief is offered by creditors, pushing European stocks lower as much as -0.6%. However the initial weakness reversed after Greece's Tzanakopoulos denied the Bild report, sending the Euro and European bank stocks higher from session lows.