The highlights this week included:

The ins and outs of US banks’ credits & deposits in March. Problem, not crisis, I think.

US labour market data: not nice, with job openings, ADP private payrolls and non-farm payrolls all on weak side. The problem is that even those pallid additions lean heavily on the lowest-paid, lowest-productivity sector - leisure and hospitality. And even there, although hourly wages are rising a bit, weekly hours are falling faster, so average take-home pay in the sector fell. Can’t build an economy on baristas alone.

In Europe, I looked at Germany’s v strong Feb industrial data, and worried whether Germany’s auto-industry is simply stuffing its Eurozone channels. I also raised a flag over France’s budget deficit, which is hefty, and now going the wrong way at speed, as corporate tax collections have collapsed.

In Asia, I celebrated the jump in Singapore’s March foreign reserves - it’s the Last Man Standing as far as safe financial centres go: loan/deposit ratio of 73% only, private sector savings surplus of around 18% of GDP!

A positive week, but with nearly half the week’s data crowded in to a hectic Friday.

This week the Macro Kernels, and the commentary, identified the following strands:

Asia's positive results (22% vs 6% shocks) were aided strongly by CNY landing this year in Jan rather than February: that meant data for Jan tended to be weak, and Feb to be strong. Even so, HK's Feb results showed a remarkable rebound which were not simply CNY generated.

Europe (30% surprises vs 21% shocks) generally reflected surprises in inflation data and shocks in real supply/demand data.

Another feature of the week was the clutch of strong confidence indexes, four from Europe. The problem: some 80-85% of the completed survey returns were made before the combination of SVB and Credit Suisse had time to register. So there’s worse to come.

Specific issues: Germany's terms of trade: in Feb import prices fell 2.4% mom and export prices fell only 0.2%, so terms of trade gained a further 2.2% mom and were actually up 3.2%. This ToT recovery is now 4-5 months in the building. As Germany’s terms of trade improve, the ‘Germany’s inevitable deindustrialisation’ story begins to totter.

And finally, the outstanding feature from earlier in the week was the weakness of European monetary and credit data. Eurozone M3 contracted 0.1% mom, credit contracted 0.2% and private sector credit contracted 0.1% mom; the UK’s M4 also contracted 0.2% mom. Again, this is what was happening before SVB and Credit Suisse, so there will certainly be more where that came from.

I'm less concerned with the recession/no-recession arguments (hey, don't US politics just absolutely fascinate you?  Me neither), than with the implications for profits and stockmarket valuations. Three observations: 

1. Regardless of headline GDP, once you strip out extremely volatile inventory-flows, there's been essentially no growth in final sales of domestic product now for five quarter.  There's just no momentum at all. 

2. The massive fiscal stimulus has not yet completely been washed out of the Kalecki profits reckoning. I calculate profits were down 7.4% qoq and 19.4% yoy, mainly thanks to the fiscal deficit moderating.  But there's worse - the profits/GDP ratio has fallen to its lowest level since 1Q16 - so there's cyclical as well as one-off structural pressure at work. 

3. All of which means the S&P500 remains overvalued on my slow-model basis, which has been essentially on the money for the last 30 years. July's rally will extend that overvaluation. So the vulnerability continues, and rises. 

The speed and severity with which data from the US has collapsed over the last month is extremely unusual.  Why is the outbreak of inflation doing such damage so quickly. 

One reason is the way in which the US profits model has changed over the years, until since 2000 to the present day, 77.6% of Kalecki profits are attributable to household and government dissavings, whilst only 22.4% come from net investment and net exports.   Compare that to 1960-1980, when net investment and exports accounted for 65.7% of profits, with h'hold and govt dissavings generating only 34.3%. 

Let's state the obvious: if your profit model depends disproportionately on h'holds and governments spending more than the earn, sooner or later, even the strongest financial balance sheet will become impaired, fragile. And it's that financial fragility which is kicking in, and kicking down, right now. 

Two things today: first, a closer look at the ECB's so-called 'Transmission Protection Instrument'. Short take: it's open ended, with only decorative conditionality. The real constraint is that it mustn't inflate the ECB's balance sheet. So if it wants to do anything other than short-term fire-fighting in (say) Italy's bond market, it will have to do so by selling (say) German bonds. That'll make ECB meetings fun to watch.

Second thing: today's UK public sector deficit of £22.1bn featured an astonishing £19.9bn in interest payments. That's 23% of total spending, which is 6.2SDs above the long-term average. Cui bono? Why, chancellor Rishi Sunak of course, hoping to step up to become PM on a Treasury-determined manifesto of immediate recession-inducing tax rises. That unprecedented shock of interest payments could almost have been designed to illustrate the Treasury's - sorry, Rishi's - argument. And probably was - 6.2SDs after all.

The UK is about to enter the strange and disturbing world of sustained double digit inflation. We can tell that from the underlying trends generating June's 9.4% yoy headline CPI, but also by the way the gap between input PPI (24% yoy) and output PPI (16.5% yoy), and the gap between output PPI and CPI are continuing to widen. Not until we see some evidence that the pressure to 'pass-through' factory inflation pressures has peaked can we expect headline CPI to retreat. There's no sign of that yet.