Chinese Equities Pop, Global Markets Brace For Earnings

Indices across Asia closed in the green as markets cheer stimulus action. The Shang Hai Composite led with a gain of more than 4.0% and was followed up by a 2.3% gain in the Hang Seng. Japanese stocks were less buoyant on fears that Chinese latest attempt to stave off economic slow-down will only serve to hurt the country long-term but were still able to close with gains. On Friday, the PBOC and securities regulators issued joint statements supporting equities and efforts to increase liquidity. These moves, such as the reduction of capital requirements for China’s banking system, will only serve to increase debt levels that already have market watchers concerned.

Australia was the real outlier in Monday’s Asian session. The ASX Index fell more than -0.55% on escalating political concerns within the country.

European Markets Rise but Italy Remains a Concern

European markets were lifted by optimism in the China and earnings results. The DAX and FTSE were neck-and-neck in mid-session trading with gains near 0.90% on the news. Shares of Ryanair and Fiat led the market, advancing 3.0% and 7.0%, on mixed results. Fiat announced the sale of Magneti Marelli unit to Japanese investor for $7.1 billion, a move cheered by shareholders, while Ryanair reported earnings that were below expectations. The mitigating factor for Ryanair is that the miss was driven in large part on infrastructure investment aimed at ensuring on-time departures.

News from Italy helped support stocks as well. A downgrade from Moody’s was far less than expected and lifted financial stocks in the country. The downgrade of one notch was expected, what was not expected was the stable outlook rating on Italian sovereignty. Italy’s coalition government has submitted a budget proposal to the EU but expects it will be rejected. Plans for increased public spending have been cited by government officials as the reason.

US Futures Set to Open Higher – Eyes on Earnings

In the US, all eyes are on earnings as the third quarter of 2018 earnings cycle hits its peak. This week will be one of the busiest of the season with just under 158 S&P 500 companies, or 31.6%, scheduled to report. Among these are also 10 Dow Components, 30% of that index, which should ensure an active week for the market. So far, with about 17% of the S&P 500 reporting, the blended rate of earnings growth is 19.5% and on the rise, gaining 0.30% in the last week.

The S&P 500 futures indicated a higher open in the early hours leading up to the US session. The index was looking at an advance near 0.45% at 8:30 AM and expected to rise at the open.

On the economic front, traders will be watching out for the FOMC Beige Book on Wednesday. The report is a monthly survey of all twelve Federal Reserve districts and an important tool for the FOMC. The report is expected to confirm ongoing economic expansion within all twelve districts. Traders will be looking closely at the inflation data for signs of acceleration and indications future interest rate hikes will be needed.