On 20 April, 2015 – European markets rallied on monetary easing in China

Stocks in the Asia Pacific retreated despite monetary easing by the PBoC. Shares both in Europe and the US rallied on the news. Improved earnings also helped investor enthusiasm.
United States
US stocks ended higher on Monday, reversing much of the previous session’s sharp decline, as China’s steps to stimulate its slowing economy and cautious optimism about US earnings lured investors into technology stocks. The Dow Jones industrials were up 1.2%, the S&P advanced 0.9% and the Nasdaq added 1.3%. IBM, Microsoft and Apple were among the best performers.
Hasbro gained after reporting better than expected earnings as sales of Transformers and other toys climbed. The toy maker is battling a shift toward video gaming, but managed to boost sales of toys targeted at boys and preschool children. Royal Caribbean retreated after the cruise operator cut its full year earnings outlook, citing the impact of a strengthening dollar and higher fuel costs.
Morgan Stanley reported a 60% rise in quarterly profit, boosted by higher revenue from trading bonds and equities. Net income applicable to common shareholders rose to US$2.31 billion or US$1.18 per share for the first quarter ended March 31 from US$1.45 billion or 74 US cents per share a year earlier. Excluding items, the bank earned US$1.14 per share.
International Business Machines reported a 12% drop in first quarter revenue as the technology company continues to shed unprofitable businesses to focus on cloud-computing initiatives. Net income fell slightly to US$2.33 billion or US$2.35 per share for the quarter ended March 31 from US$2.38 billion or US$2.29 per share a year earlier. Total revenue fell to US$19.6 billion from US$22.2 billion.
Gold at the afternoon London fixing was down US$6.85 to US$1,196.50. Copper futures were down 1.8% to US$2.72. WTI spot crude was up 50 US cents to US$56.24. Dated Brent spot crude was down 11 US cents to US$63.34. The US dollar was up against all of its major counterparts including the euro, yen, pound, Swiss franc and the Canadian and Australian dollars. The Dollar Index was up 0.5%. The yield on US Treasury 30 year bond was up 3 basis points to 2.55% while the yield on the 10 year note added 1 basis point to 1.88%.
Europe
Stocks rebounded Monday after ending the previous trading week on a negative note. Investors continued to be concerned over the situation in Greece, but were enthused by the People’s Bank of China’s announcement that the bank reserve requirement ratio was reduced by 100 basis points Sunday, the biggest such cut since the financial crisis. The PBoC lowered the amount set aside by banks as reserves to 18.5% effective Monday. The action was taken after the economy logged its weakest growth in six years. The FTSE was up 0.8%, the CAC gained 0.9% and the DAX jumped 1.7%. The SMI however was virtually unchanged (down 2.21points).
Over the weekend, technical talks between the Greek government and the institutions overseeing the bailout took place in Paris. Negotiations have so far yielded little in terms of progress, and European officials have cautioned that discussions between the two sides are nowhere near the point where bailout money can be disbursed. Greek banks may soon run out of collateral to access European Central Bank refinancing unless Athens reaches a deal over the release of another €7.2 billion in bailout funds from the European Union, France’s central bank chief said. A meeting of Eurozone finance ministers will be held in Latvia on April 24.
Banks including Commerzbank, Deutsche Bank, Société Générale, BNP Paribas and Crédit Agricole advanced on the day. Automakers Daimler, BMW, Peugeot and Renault gained. Miners rallied on the Chinese stimulus news. BHP Billiton, Anglo American, Rio Tinto and Antofagasta were up. Aveva, which issued a trading update, retreated. UniCredit advanced after the company’s CEO stated Saturday that UniCredit is close to a deal to combine its asset management business with that of Banco Santander. Santander also gained.
Asia Pacific
Unlike shares in Europe and the US, stocks here retreated as mounting fears about a Greek default, uncertainty over the timing of a Federal Reserve rate increase and apprehensions about whether China will be able to keep its economy from losing too much steam kept investors on edge. Chinese stocks erased early gains as a crackdown by the China Securities Regulatory Commission on margin lending overshadowed positive sentiment arising from additional policy easing to bolster the slowing economy. The Shanghai Composite and Hang Seng lost 1.6% and 2.0% respectively.
On Friday, China’s securities regulator said it would allow fund managers to lend shares for short selling amid the continued surge in stock prices. The China Securities Regulatory Commission also tightened rules on margin lending and warned investors to be rational, sending stock-index futures down more than 5% in after-hours trading Friday. In another move that aims at neutralizing the negative impact of the new trading regulations, The PBoC surprised markets by cutting the amount of cash that banks must hold as reserves by 100 basis points to 18.5%.
The Nikkei edged 0.1% lower as the PBoC’s move over the weekend to stimulate the economy failed to boost sentiment. Exporters were mixed, with Fanuc, Toyota Motor, Canon, Mazda Motor, Nikon, Honda Motor and Sharp closing lower while Panasonic and Sony advanced. Fast Retailing and Mitsubishi UFJ Financial Group advanced.
The S&P/ASX and All Ordinaries both dropped 0.8% as worries over Greece’s future and changes in Chinese trading rules added to lingering uncertainty over the Reserve Bank of Australia’s next interest rate move. The Kospi inched up 0.1% to its highest level since August 1, 2011. The Sensex dropped sharply as disappointing merchandise trade figures, rising oil prices and weak global cues sapped investors’ appetite for risk. The index lost 2.0%.
Global Stock Market Recap

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
The Reserve Bank of Australia publishes the minutes of its meeting held earlier this month. April ZEW survey for Germany will be released.
*Note — all releases are listed in local time.
Anne D PickerChief EconomistEconoday