The two market-moving stories this morning are banks and China.
Chinese exports were much better than expected, and imports dropped less than expected.
China trade (YOY, in dollars)
Exports: up 11.5 percent
Imports: down 7.6 percent
But this is quoted in dollars. In Asia and especially in China, everyone looks at the data in renminbi terms, and the numbers are quite a bit better.
China trade (YOY, in CNY)
Exports up 18.7 percent
Imports down 1.7 percent
On this, China markets were up strongly. There was a short squeeze in Hong Kong, with markets up there 3.2 percent. The Shanghai Composite rose 1.42 percent, and the Shenzhen was up 1.35 percent.
This has also ignited a significant rally in Europe. The European Stoxx 600 is up 2 percent — near the highs for the year — with big moves up in metals on the China news. Banks are also rallying.
This China data, if backed up with additional data, has the potential to be a long-term market mover. Remember the big four volatility factors this year: the Fed, the dollar, oil, and China.
However, one data point does not a trend make. There may have been some calendar effects as well. The Chinese New Year was late in 2015, which may have hurt exports in March of that year.
The Fed and the dollar have been much lower sources of volatility recently. The big question for oil is, "Where's the bottom?" That's still not clear, but the farther we get from that $26 per barrel print on Feb. 11, the more it looks like that was the bottom. Oil is no longer moving the market the same way it did.
That leaves China as the major volatility factor for the markets. See why stability there would be a major mover for world markets?
There's a couple other risks that are on the horizon.
1) Political risk around the U.S. election and around the Brexit debate in the UK and Europe.
2) The biggest risk of all: central banks ineffectiveness. Markets were extremely nervous last week when everyone saw the yen strengthening, despite efforts by officials to jawbone it down. Kuroda's credible is clearly at stake. This is not yet an issue for the ECB's Draghi or the Fed's Yellen, but it is a blip on the horizon.
The other big story are the banks. JPMorgan earnings were a bit above expectations. And that is enough.
Never mind that it was a modest beat on slightly better trading revenues, with loans up 11 percent year-over-year (about as expected). With JPMorgan's shares down 10 percent on the year — and most other big banks down as much — the risk is to the upside. Any slight beat with modestly positive comments will move the entire group forward. And that is exactly what is happening.
I have described the banks as "zombies" this year, wandering around aimlessly. The combination of regulatory burden, modest loan growth, and persistently low interest rates has left investors uninterested
That's why you see this kind of horrible underperformance.
Major sectors YTD
: up 0.9 percent
Energy: up 6.4 percent
Industrials: up 3.6 percent
Materials: up 4.2 percent
Banks: down 10.2 percent
But everything has a price, and with a big bank like JPM trading at roughly 10 times forward earnings and well below book value, it's about time the value people start picking at these carcasses.