The Monday Market Minute

  • Global stocks rally after China tax pledge helps domestic markets rip to their biggest single-day gain in three years.
  • Beijing aims to tackle slowing growth and trade war impact with tax cuts that could be worth $1.2 trillion after Q3 GDP showed the slowest growth in a decade.
  • European stocks gain, with autos and basic resources leading the advance, even as Italy's budget crisis continues to hold down sentiment following Moody's decision to cut its sovereign rating to Baa3 late Friday.
  • U.S. stock called higher, with the S&P 500 set for a modest opening bell gain, ahead of an active week of earnings that includes updates from Amazon, Alphabet, Microsoft, Ford, Boeing and Lockheed Martin. 

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Market Snapshot

Global stocks kicked off the week in a bullish mood Monday, with markets in China ripping to biggest single-day gain in three years following government pledges on tax and liquidity, as investors eye a key set of U.S. corporate earnings, and myriad geo-political risks, in order to gauge market direction between now and the end of the year.

The People's Bank of China said Monday that tax cuts floated over the weekend by government leaders in Beijing could be worth as much as 1% of GDP in the world's second largest economy, or $1.2 trillion, a move officials are hoping will help ignite growth and steady financial markets as they grapple with efforts to reduce risky lending and reach a settlement in the ongoing trade war with the United States.

The pledge, which followed data that showed China's economy grew at the slowest pace in a decade last quarter, helped lift the Shanghai Composite more than 4% by the close of trading, its best gain since 2015, and the tech-focused CSI 300 more than 4.3%. Broader Asia markets rose around 1% in the wake of the PBOC's comments while Japan's Nikkei 225 ended the session 0.37% higher at 22,614.82 points.

The gains spilled over into Europe, where the Stoxx 600 rose 0.4% by early afternoon in Frankfurt, and help take U.S. equity futures into the green, with contracts tied the Dow Jones Industrial Average indicating at 55-point opening bell gain while those linked to the S&P 500 suggested suggested a 12.7 point gain for the broader benchmark.

Investors are also likely to focus on a host of blue-chip earnings this week, including tech giants Amazon (AMZN) , Alphabet (GOOGL) and Microsoft (MSFT) as well as industrial bellwethers Ford (F) , Boeing (BA) , Lockheed Martin (LM) and Caterpillar (CAT) , as the third quarter reporting season shift into high-gear.

The China surge also helped settle market nerves amid a host of geo-political and market risks that escalated over the weekend, including a suggestion from President Donald Trump that the United States was prepared to leave the Intermediate-Range Nuclear Forces Treaty with Russia, a deal brokered in the 1 980s between President Ronald Reagan and former Soviet leader Mikhail Gorbachev.

That was matched by a joint statement from the leaders of France, Germany and the United Kingdom which was harshly critical of the Saudi Arabian government for its lack of transparency and truthfulness over the death of dissident journalist Jamal Khashoggi, whom the Riyadh now admits was killed during a fight at the Saudi consulate in Istanbul in what it calls a "huge and gave mistake".

European markets were also able to shrug off, for the moment at least, the escalating crisis around Italy's budget negotiations with the European Union following a late Friday move by Moody's Investors Service to cut Italy's debt rating to Baa3, one notch away from junk status, as it plans to increase its deficit to 2.4% over the near term in order to boost spending and roll-back previous pension reforms.

Italy's government bond yields, however, fell sharply Monday, with 10-year paper tumbling 25 basis points to 3.34% as investors reacted to Moody's decision to keep its rating outlook "stable", a move that will allow for more time for negotiations between Rome and Brussels.

Global oil markets were also active, with crude prices rising amid both speculation that China demand could rise in the wake of the government's pledges on growth and concern that OPEC nations may not have the capacity to fill the gap left by the looming ban on the sale of Iranian crude, which comes into force on November 4.

Brent crude contracts for December delivery, the global benchmark, were seen 37 cents higher from their Friday close in New York and changing hands at $80.15 per barrel, while WTI contracts for November delivery, which are more tightly liked to U.S gas prices, were seen 26 cents higher at $69.54 per barrel.
 

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