Soft Data From China And Rate Decision By ECB Provides Markets Backdrop - Economic Highlights

Stocks appear on track to start today's session in the green, with soft data out of China and the rate decision by the European Central Bank (ECB) providing the backdrop.

The ECB decision of leaving interest rates unchanged came in as expected. Recent economic readings from the region have consistently been showing that the ECB's bond-purchase program has been having the desired effect on growth.

The growth picture is particularly favorable for Germany, where a combination of low interest rates and oil prices is helping business and consumer spending. Germany's export-centric economy is getting a boost from the weakening common currency, which has steadily been losing ground relative to the U.S. dollar given the expansive ECB monetary policies.

The improved growth outlook has helped ease deflationary pressures as well, even though recent inflation readings still show a negative trend. A key point of interest for investors now is to gauge how patient the ECB will be in sustaining the expansionary policy as macro indicators start stabilizing.

While Europe's growth picture is improving, China seems to be losing ground. China's economy grew at its second slowest pace since 2001, up +7% year over year in the March quarter, down from the preceding quarter's +7.3% pace. The loss of momentum is evident in all growth drivers of the economy, with fixed investments, industrial production and housing all coming short of estimates. Earlier this week, we saw the country's trade numbers fall sharply, though many consider the soft trade numbers more a function of the seasonality factors related to the Lunar Year.

The first quarter GDP growth rate still leaves the country on pace to achieve the government's +7% annual growth pace, but it nevertheless forces a balancing act on the authorities to ensure that stimulus measures don't produce pricing pressures and/or speculative excesses. Among measures taken by the Chinese authorities lately have been two interest rates cuts, lowered electricity tariffs and increases infrastructure spending. They could do more, though the recent run of soft economic readings shows that the measures thus far hasn't had as much effect on propping up growth.

On the earnings front, Bank of America ( BAC ) this morning came short of the high bar set by J.P. Morgan ( JPM ) on Tuesday. It not only missed top and bottom-line estimates, but its report didn't show any of the investment banking and trading gains that we saw in the J.P. Morgan report. On the positive side, Bank of America showed favorable momentum in mortgage banking, deposits and expenses. Including this morning's reports, we now have Q1 results from 36 S&P 500 members that combined account for 12.2% of the index's total market capitalization.

Total earnings for these 36 companies are up +17.3% on +2.2% higher revenues, with 77.8% beating EPS estimates and 38.9% coming ahead of top-line expectations. In terms of growth rates and beat ratios, this is better performance than we have seen from this same group of companies in other recent quarters.

The sole exception is the revenue beat ratio, which is weaker than what we have been seeing in recent periods. The composite (or blended) growth rate for the quarter, combining the actual results from these 36 companies with estimates for the still-to-come 464 index members is for an earnings decline of -2.9% on -5.3% lower revenues.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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