Monday Blues Playing Again: China Data, Citigroup Earnings Both Weigh

(Monday Market Open) Today’s opening bell rings in the U.S. earnings season, but many investor eyes glanced warily across the Pacific in the early going as markets around the world reeled from more bearish Chinese economic data.

There’s a lot to take in as the week gets underway, including earnings from Citigroup (NYSE:C)—the first big bank to report. The U.S. government remains in shutdown, now the longest in history.

Still, the dominant factor appears to be Chinese economic news, which once again failed to impress and raised more concerns about a slowdown there. Exports from China fell 4.4% in December and imports dropped 7.6%. Meanwhile, China’s trade surplus with the U.S. climbed 17% from a year ago.

Beyond the trade relationship, faltering Chinese numbers could tell a bearish story about the global economy. So much of the economic motor is driven by what happens in China that any sign of the brake pedal coming on can set markets on edge worldwide. Commodities are often among the first areas to reflect China concerns, and that was no different Monday as crude fell back toward $50 a barrel and copper—used in many industrial applications—also dived.

While the markets are down due to the Chinese data, and there’s no question the numbers aren’t good, one school of thought suggests that poor Chinese economic news might actually help long-term with the tariff situation. A weak economy doesn’t help China’s bargaining position, maybe making officials there more eager to reach an agreement. There’s also the question of whether the skimpy data reflects underlying economic weakness there or pressure from the tariffs. It’s a two-headed monster, and the numbers may reflect a little of both.

As investors mull the latest set of numbers from China, Citigroup (NYSE:C) delivered some underwhelming data of its own. The bank reported revenue of $17.1 billion, well below the $17.94 billion pegged by third-party consensus analyst estimates. The company said poor results from its bond trading led to the revenue miss, and, to be fair, C warned back in December that its trading revenue might be light. So there’s no real surprise here. It’s all about fixed income on the revenue side.

C also managed to come in right at expectations with earnings per share of $1.61. The company did a heck of a job on expenses, and the rest of the numbers look pretty good. They seem to show signs of a healthy economy.

The weak trading revenue could reflect certain realities in the market. While volatility is often a boon for bank trading desks, the combination of uncertainty and heightened volatility across asset classes like there has been the past few months can result in investors holding off on making major moves until the dust settles a bit.

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Shares of C fell about 1% in pre-market trading after the earnings announcement before inching back slightly as investors read through the data. The rest of the day is kind of quiet from an earnings perspective, but tomorrow morning brings Delta (NYSE:DAL), JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC). Shares of some of the other big banks appeared to fall in sympathy with C early Monday.

Remember, the story with the big banks isn’t just the numbers. It’s also what the CEOs say about their business and the overall economy. Many investors look closely at the executives’ comments, and those could help set the tone for the entire earnings season. This time around, it’s probably important to listen for what they say about the Chinese trade situation as well as the government shutdown and their thought on how those factors are affecting the economy.

In other corporate news early this week, the color red also seemed to dominate early on. Pacific Gas & Electric Co. (NYSE:PCG) prepares to enter Chapter 11 bankruptcy one day after its CEO resigned as the company faces billions of dollars in liability for its role in California’s recent wildfires.

The weakness early Monday puts a damper on things after what looked like a pretty good set of sessions last week. Back then, the market found support from dovish Fed commentary that helped bolster reassurances to market participants.

The latest data on that front, in the form of the consumer price index, came in as expected and seemed to show that the Fed does indeed have room to be patient in its plans for monetary policy, perhaps without the need to be as hawkish as the market was thinking going into the end of last year.

The market had also been riding some optimistic sentiment about the potential for a resolution to the U.S.-China trade war amid talks in China. But few details were forthcoming, and news of a potential high-level meeting in the U.S. later this month apparently received a “meh” from market participants.

Perhaps that’s because any optimism that was left concerning a trade deal got squashed after Reuters reported that China plans to lower its economic growth target this year amid U.S. tariffs and slackening domestic demand.

Recent data from China have shown sluggish consumer and producer prices, compounding worries about slowing growth in the world’s second largest economy. Data have also shown a weakening of the Chinese manufacturing sector, adding to evidence that the trade war, which according to media reports has disrupted the flow of hundreds of billions of dollars worth of goods, is taking a bite out of global growth.

It also seems that the continuing partial U.S. government shutdown is beginning to weigh more on investors’ minds. While it’s been an issue for as long as it’s been going on, Friday tied the current shutdown with the longest gap in funding in United States history. The last 21-day shutdown was during the Clinton administration. Meanwhile, hundreds of thousands of federal employees are temporarily out of work, and the shutdown is disrupting the flow of economic data.

The S&P 500 closed above what some analysts see as a key technical support level at 2584, despite spending time below that during the session. That could prove to be a bullish sign going into the new week as the earnings season kicks off in earnest.

The coming days are scheduled to be filled with a bevy of financial company earnings reports, including from JP Morgan, Wells Fargo, Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS). The deluge starts Monday morning with C, followed by JPM and WFC on Tuesday morning. Buckle up.

Beyond whether the banks beat, meet, or miss projections, it could be interesting to tune in to see whether their executives discuss their outlook for interest rates. The yield on the 10-year Treasury has pulled back to well under the key 3% rate as investors have sought the relative safety of U.S. government debt. At the same time, there have been worries about the potential inversion of the yield curve, an out-of-the-ordinary formation that has preceded recessions in the past.

Also, the airline sector—which has come under pressure in the market lately as some companies are taking a hit to revenue—climbs into view early this week with earnings from Delta and United Continental on Tuesday. Low fuel costs have led to lower fares, hurting revenue for some carriers.

With the airlines, it’s going to probably be interesting to see if the government shutdown affects them. Are they seeing ticket sales slow, and how big are their government contracts? These are questions investors might get some answers to.

In the communications services sector, Netflix (NASDAQ:NFLX) is scheduled to report on Jan. 17. The stock has been rallying in part on an announcement of a bumper audience for its hit movie Bird Box. But that raises a question of whether it might face pressure from analysts and journalists about releasing figures for other shows. NFLX shares rose on Friday after Raymond James and UBS analysts upgraded the company.