Global Markets Up on PBOC Move

Originally posted at Briefing.com

It was a slippery slope on Friday as all of the major indices fell at least 1.1%. Things are looking better this morning, however.

The People's Bank of China (PBOC) is getting most of the credit for the positive disposition, which goes to show both the interconnectedness of global markets and the global adulation for easy monetary policy.

The headline that got everyone's attention is that the PBOC slashed the reserve requirement ratio (RRR) for all banks in China by 100 basis points to 18.50%.

The move by the PBOC had a startling quality to it for a few reasons: (1) it was the biggest cut in the RRR since November 2008 and (2) it came less than two days after securities regulators in China took steps to curtail speculative trading activity.

Notably, the Chinese equity markets declined on Monday. Hong Kong's Hang Seng dropped 2.0% and China's Shanghai Composite fell 1.6%. Those losses ended up being better than feared. Following the news on Friday that regulators were restricting margin trading and increasing the ability to sell stocks short, index futures were down 5%.

Cutting the RRR then took some of the sting out of the regulatory punch. It also helped put a bid in European markets, which are still grappling with the whole Greek ordeal.

The latter was reportedly a factor in Friday's weakness, but seeing that nothing was resolved over the weekend and that European markets are mostly higher today, it is apparent that the PBOC decision was looked at with adoring, offsetting eyes.

Here at home, there hasn't been a lot of time spent licking Friday's wounds. The major indices are on a higher note.

Better than expected earnings results from Morgan Stanley (MS) and Hasbro (HAS) have helped solidify the positive tone that took root overnight.

This will be an extremely busy week of earnings reporting with 136 S&P 500 companies due to release their results. Thus far, the first quarter reporting period has been better than expected, which isn't a surprise. Companies often surpass earnings estimates that get lowered in front of the actual reporting period.

It's still a long stretch, though, to label the earnings reports in aggregate as being good. To that end, first quarter earnings per share are now expected to be down 2.4% versus a decline of 3.2% projected on April 10.

Finally, New York Fed President Dudley (FOMC voter) said earlier today that he hopes the data support a rate increase later this year and that he expects 2015 growth to improve after a slow start in the first quarter. Those were standard-issued remarks, so it was taken in stride by the market. For added perspective on economic activity and the inability to raise the fed funds rate so far, be sure to read this week's installment of The Big Picture, Boston Strong, U.S. Economy Weak.

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