Any analysis of the stock market action or the macroeconomic picture done prior to Friday morning is likely to be tossed out the window this morning. The bottom line is the action taken by the People's Bank of China and the most recent comments made by the ECB's Mario Draghi now trump everything.

China's Surprise Move

In a surprise move, the People's Bank of China cut its one-year benchmark lending rate by 40 basis points (0.40%) to 5.6% after the market close on Friday. It was the first time the Chinese had cut rates since July 2012.

The PBoC attempted to downplay the significance of the move by saying that the rate cut was not a change in monetary policy. In a statement, the bank said that there is no need for aggressive stimulus with economic growth still at a reasonable rate.

However, anybody that has been paying attention knows better. Remember, a growth rate of 7%, while admirable almost anywhere else in the world, is simply too low in China. The current assumptions are that the world's second biggest economy will likely miss its growth target of 7.5% this year - perhaps by a wide margin.

Recall that just yesterday, the flash PMI came in at 50.0, which is right on the line between expansion and contraction mode for the manufacturing sector and was a 6-month low. Oh, and the Output Component fell to 49.5 in November. HSBC said, "Disinflationary pressures remain strong and the labour market showed further signs of weakening."

Separately it was reported that the Chinese economy grew by 7.3% year-over-year in the third quarter - the slowest pace in more than five years.

The move by the PBoC put a spring back into the bulls' step in Europe on Friday as countries such as Germany are tied heavily to the economic success of China. Germany's DAX index is up over 2.2% in afternoon trade.

But Wait, There's More!

Speaking of Europe, Super Mario is attracting attention again this morning. The ECB President appears to be doing everything he can to underpin the idea that the European central bank will soon launch a sovereign QE program. Friday morning, Draghi said in speech that ECB needs to raise inflation expectations as fast as possible.

"We will continue to meet our responsibility - we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us," Mr. Draghi said in a speech to a banking conference Friday morning.

Draghi added, "If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases."

Recall that inflation in the Eurozone was reported at just 0.4% last month, which is far below the ECB's target of 2%, and that central bankers around the world appear to be using the concept of inflation expectations in order to justify buying bonds and other assets (and in Japan's case, stock market ETFs and REITs) on the open market in order to keep rates low and stimulate growth.

Therefore, you can toss aside anything you might have been thinking about with regard to what comes next in the stock market. The bottom line here is that more stimulus and more QE is a good thing for stocks.

S&P 500 - Daily

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Turning To This Morning

There has been big news overnight as the Chinese unexpectedly cut rates and ECB President Draghi once again talked positively about launching a sovereign debt QE program across the pond. As one might have expected, European stock markets have rallied hard on the news and U.S. stock futures are pointing to a stronger open. And yes, sometimes it is that simple in this game.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: +0.33%
    Hong Kong: +0.37%
    Shanghai: +1.40%
    London: +1.05%
    Germany: +2.15%
    France: +2.22%
    Italy: +2.42%
    Spain: +2.60%

Crude Oil Futures: +$1.89 to $77.74

Gold: +$7.90 at $1198.80

Dollar: higher against the yen, euro, and pound

10-Year Bond Yield: Currently trading at 2.345%

Stock Indices in U.S. (relative to fair value):
    S&P 500: +18.65
    Dow Jones Industrial Average: +153
    NASDAQ Composite: +37.46

Thought For The Day:

The easiest way to save face is to keep the lower half shut. -Unknown

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President, Heritage Capital Research
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