Trader Talk

What the cut in China reserve requirements mean for stocks

Pisani's market open: Royal Caribbean earnings
VIDEO3:0903:09
Pisani's market open: Royal Caribbean earnings

Over the weekend China reduced the reserve requirements for banks by 1 percentage point, from 19.5 percent to 18.5 percent. That will allow more funds held by banks to be available for lending; estimates are it could free up 1 trillion yuan (about $160 billion).

What's not clear is how much of that money would find its way into the stock market.

This is the second time the Chinese have cut the reserve requirements this year. The People's Bank of China reduced it from 20 percent to 19.5 percent on Feb. 4.

Next up is a likely cut in interest rates. The Chinese cut the one-year lending rate on Nov. 21, 2014 by 40 basis points, from 6 percent to 5.6 percent, then again on Feb. 28 by 25 basis points, to 5.35 percent.

Read MoreWeek ahead for Asia: Watch out for these

That November cut, the first in more than two years, coincided with the great rally in Chinese stocks which began at the same time.

That's when the Chinese started talking aggressively about "stimulus," which is being carried out by lowering rates and reserve requirements.

So why was the Shanghai Index down 1.6 percent in China? It's likely because of the continuing fallout from last week's announcement that regulators would ban margin financing in over-the-counter stocks.

This is part of the problem: Policymakers talk stimulus, which encourages money to go into stocks, but they don't want the market to get too hot, so they pull back in other areas.

Elsewhere:

1) A simple way to understand the dollar impact. Confused about the effect of the dollar on company earnings and revenues? Take a look at Royal Caribbean. The cruise line reported a nice beat on earnings, but missed on revenues.

The cruise line business is doing well. Bookings are strong, but the strengthening dollar is again putting pressure on Royal Caribbean, and the company provided a very simple illustration of how it is hurting them.

The majority of onboard sales are in dollars. The strong dollar has reduced the purchasing power of international guests. As a result, those guests spent less on board. Revenue hit.

The estimated the strong dollar—along with a slight increase in fuel prices since the last update in January—would reduce earnings by 36 cents.

Full-year guidance is now in a range of $4.45 to $4.65, down from $4.65 to $4.85.

Read More Will earnings remain a 'crutch' for US stocks?

2) Goldman Sachs, in a report out Friday night, confirmed that analysts have been over-shooting by lowering their earnings estimates for the first quarter very aggressively—and I don't just mean for energy stocks.

Goldman noted that with 59 companies reporting, only 3 percent have missed earnings estimates, much lower than the 15 percent that miss historically, so more firms are reporting in-line results than usual.

Goldman also confirmed a point I made in my Trader Talk last week: Revenues are falling short. Only 17 percent of the 59 companies beat on both sales and earnings.