Monetary

Q1 Earnings and sales growth were strong, but the devil is in the details: Without the Magnificent Five, earnings growth for the index would have been negative. On a positive note, margins have stabilized, and earnings growth is expected to broaden into yearend. Companies are optimistic about the economy. Development of AI applications is in full swing, but few companies are monetizing them yet. Consumer spending is strong but is slowing. We reiterate our underweight of consumer sectors, and overweight of Software and Services as the “don’t fight AI” adage holds.

ASEAN stocks and currencies will weaken further as these economies face multiple headwinds. Raising policy rates did not stop a sliding currency in the past, it is unlikely to do so now.

Our updated views on Treasury yields and Fed policy following this morning’s CPI report.

We marked the first X on our Equity Downgrade Checklist and the latest JOLTS, Employment Situation and SLOOS releases brought us closer to ticking some others. We remain tactically neutral on equities but expect that we will underweight them as excess savings are further depleted, leading labor market indicators continue to soften and consumer credit performance continues to fray.

German Bunds have cheapened considerably, and the ECB is about to start cutting rates. Does this combination guarantee immediate profits from buying these bonds?