China Stimulus Lifts Equities, A Hard-Brexit Is At Hand, Bank Earnings Better Than Expected

China Increases Stimulus Efforts As Tariffs Weigh On Growth

The Chinese government issued new stimulus measures on Tuesday that are intended to help the nation get “off to a good start” in the first quarter of the year. The measures include a decrease in capital requirements for the nations banks as well as tax and fee cuts that amount to the largest stimulus package ever delivered in a single move.

Chinese equity markets were cautious but hopeful in the wake of the news. The Shanghai Composite closed with no movement, 0.0%, for the day while the Hong Kong Heng Seng and Shenzen markets both saw small gains. The biggest mover in the region, the Korean Kospi, advanced a tepid 0.43%. The Australian ASX advanced 0.35% while the Japanese Nikkei fell -0.55%.

A Hard-Brexit Is At Hand, Equity Markets Shrug It Off

Theresa May’s Brexit plan with the EU was voted down in what has been described as an embarrassing defeat. The vote went 432-202 in the worst parliamentary defeat in decades. The result has led to yet another vote of confidence for May that is due sometime today. The real question in traders minds is what will happen next. Based on market action I have to assume that the worst is already priced into equities.

The financial sector led the EU market at midday with gains averaging 1.0%. The sector was supported by strong earnings from the US and news from Italy. An Italian lawmaker has suggested a round of mergers within Italy’s banking system would make it much stronger, news that had banks in that nation up more than 2.0%.

On the economic front inflation in the UK has fallen to the lowest level in nearly two years. The CPI figures came in at 2.1% YOY, down from 2.3% in the previous month, largely due to falling gas prices. At the core level, CPI increased a tenth and more than expected to 1.9% YOY, news that helped keep the pound stable in today’s early session.

Strong Bank Earnings Lift Futures In The US

A round of better than expected bank earnings has the US equity futures moving higher in the early morning session. The gains were small, about 0.25% on average for the major indices, but put them at new near-term highs. Today’s news includes reports from Blackrock, Goldman Sachs, and Bank of America.

While better than expected, the reports reveal sluggishness in the fourth quarter that is largely due to trading revenue. Shares of Blackrock were down more than -1.0% in early trading due to a -50% decline in net inflows for the investment management firm. Others, like Bank of American and Goldman Sachs, were up 2.0% to 5.0% on strength in core consumer businesses.

Today’s calendar includes a half dozen economic reports that will not be delivered because of the US government shutdown. What we will get is the Fed’s Beige Book, at 2 PM ET, and a look into how the US economy is doing. Traders will be looking for signs of sustained economic activity, strength in labor markets, and declining inflationary pressure.