ORLANDO, Florida, June 2 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

The new trading month got off to a cautious start on Monday,

with risk appetite sapped by the U.S.-China trade standoff and

bubbling military tensions around the world, although a

closely-watched tracking estimate of U.S. growth helped drive a

late rally on Wall Street.

In my column today I look at how, despite the drop in

profits in the first quarter, corporate America is well-prepared

to face the economic storm that may be coming its way. Indeed,

corporate America has rarely been in better shape. 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.

1. ECB faces surging euro conundrum: Mike Dolan

2. Playing it smart: Five questions for the ECB

3. Weak dollar reprises its role as 'carry' trade

funder

4. BOJ urged to keep or slow bond taper pace from

fiscal

2026

5. Trump tax bill poses limited benefits, higher

costs for

lower-income Americans

Today's Key Market Moves

* U.S. stocks rise, led by the energy sector and

some Big

Tech names like Meta and AMD. The S&P 500 rises 0.4%, and the

Nasdaq gains 0.7%.

* The dollar falls 0.6% on an index basis to a

six-week

low, losing ground against all its peers. Biggest winner is the

kiwi dollar, up more than 1% to a 7-month high of $0.6039.

* U.S. crude oil jumps as much as 4% intraday after OPEC+

keeps

its output increase unchanged. WTI nudges $64/bbl, Brent climbs

2% above $65/bbl.

* U.S. Treasuries fall across the board, most heavily at the

long

end where yields rise 7 bps and steepen the curve.

* Gold leaps 2.8% to $3,380/oz, boosted by tariff

tensions, geopolitical concerns and the weaker dollar.

Trade tension turns to tentative hope

The first trading day of June was sticky for stocks, bad for

bonds and downbeat for the dollar, with tariff concerns once

again top of investors' minds.

Wall Street got off to a tepid start, perhaps understandably

given how well it performed the month before. According to

Citi's Stuart Kaiser, U.S. stocks outperformed Treasuries in May

by the widest margin since October 2022.

The S&P 500 rose 6.2% to break its first three-month losing

streak in five years while the 10-year Treasury's total return

was -1.57%, giving stocks their widest winning margin over bonds

for a single month since October 2022.

But a sense of cautious optimism emerged as the session

progressed, and the main indices rebounded. Two developments

were worth noting.

First, the Atlanta Fed's GDPNow estimate of annualised GDP

growth in the second quarter growth was raised to a punchy 4.6%

from 3.8%, which is much higher than current consensus forecasts

and would mark a significant recovery from the January-March

contraction.

Second, the White House said President Donald Trump and

China's Xi Jinping will likely speak this week, a sign of

possible detente in the trade war between the two countries

that's creating so much of the global economic and market

uncertainty.

Meanwhile, the bond and currency market trends that have

been established in recent weeks show no sign of reversing, and

the first trading day of the month saw the dollar and Treasuries

fall again, and yield curves continue to steepen.

Federal Reserve Governor Christopher Waller's remarks on

Sunday that U.S. interest rates can still come down later this

year were echoed by Chicago Fed President Austan Goolsbee on

Monday. This weighed on the dollar and short-dated yields, but

tariff and inflation worries lifted long-dated yields, and the

20- and 30-year yields are bumping up against 5.00% again.

The dollar's slide, economic uncertainty and heightened

geopolitical tensions all put a strong bid under gold, which

leaped nearly 3% to a three-week high. April's record peak of

$3,500/oz is not too far away.

Tuesday's session will likely be dominated by tariff

headlines again, while a speech from Bank of Japan Governor

Kazuo Ueda and euro zone inflation figures for May are among the

other events investors will be watching closely.

Corporate America is well prepared for the coming storm

Headwinds from tariffs, bond yields and 'stagflation' are

gathering force, but corporate America could not be in better

shape to face the economic storm that may be building.

Data released last week showed that U.S. pre-tax corporate

profits fell $118.1 billion, or 2.9%, in the first quarter, the

fastest pace since 2020, suggesting companies are feeling the

pinch from tariffs even before they've properly started to bite.

After-tax profits fell 3.6%.

But any sense of alarm should be mitigated by the fact that

profits surged $205 billion, or 5.4%, the three months before.

The decline in the January-March period was simply normalization

on the back of a bumper quarter.

And on a year-on-year basis, profits were up more than 5%.

True, the next few quarters could get messy. If growth slows

or inflation starts to rise, corporate margins could get

squeezed, consumers may curb spending and companies could find

themselves with limited pricing power.

But zoom out, and the bigger picture suggests corporate

America has rarely been stronger.

Depending on how you slice and dice the figures, corporate

profits as a share of national output or income are still

extraordinarily high. In some cases, they're close to the

highest on record.

Consider pre-tax profits with inventory valuation and

capital consumption adjustments. These fell slightly to 13.0% of

GDP in the first quarter of this year, on a seasonally-adjusted

annual basis, but that was from a record 13.5% in the

September-December period.

After-tax profits dipped to 12% of GDP from 12.2% in the

final quarter of last year. Again, that was a small decline, and

it leaves after-tax profits still near the all-time peak of

12.8% of GDP recorded in the second quarter of 2021. The average

over the past 75 years is less than 7.5% of GDP.

To paraphrase former British Prime Minister Harold

Macmillan, corporate America has never had it so good. Which is

just as well, because headwinds are gathering.

DOMESTIC VS 'ROW'

One can debate how much any of the number of brewing risks

will land on the real economy, but companies could certainly

feel some pain if they end up facing the collective punch of

tariffs, weakening consumer demand, diminishing pricing power

and higher-for-longer interest rates.

"An increasingly fragmented environment means diverging

trends across economies. It's an environment ... that will

constrain profits at home and around the world," says Gregory

Daco, chief economist at EY-Parthenon.

Tariffs and protectionism will put the squeeze on global

supply chains and overall trade. It will be interesting to

observe how the divergence between domestically-generated

profits and earnings accrued from the rest of the world (RoW)

plays out in this environment.

Domestic profits account for the majority of total income,

of course, but that share has exploded recently. Or looked at

the other way, the share of profits from abroad has plunged. If

Trump's trade war succeeds in prompting U.S. companies to bring

more production back home, the 'RoW' footprint may shrink

further.

In the fourth quarter of 2019, just before the pandemic,

domestically-generated profits were around 75% of the $2.13

trillion total, on a seasonally-adjusted annual basis, and 'RoW'

profits accounted for a quarter. In the first three months of

this year, domestic profits accounted for 87.5% of the total,

and the share of profits from abroad had halved to 12.5%.

Corporate profitability is being tested. The aggregate

second quarter earnings growth forecast for S&P 500 companies

stands at 5.5%, according to LSEG I/B/E/S, down from 10.2% two

months ago. The 2025 calendar year earnings growth forecast has

shrunk to 8.3% today from 14.0% at the start of the year.

The challenges are mounting, but corporate America can face

them from a position of strength.

What could move markets tomorrow?

* South Korea presidential election

* South Korea CPI inflation (May)

* China Caixin manufacturing PMI (May)

* Euro zone inflation (May, flash estimate)

* U.S. durable goods orders (April)

* U.S. JOLTS job openings (April)

* Fed officials scheduled to speak include: Chicago Fed

President

Austan Goolsbee, Dallas Fed President Lorie Logan, and Fed

Governor Lisa Cook

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.