European markets are outpacing Wall Street this afternoon, while Citigroup gets bank earnings off to a good start. 

The first day of earnings season has arrived, and while Citigroup has managed to beat forecasts, investors are understandably cautious given the volume of releases yet to come. European markets have been modestly positive all day, as they attempt to close the gap on a relentless rally in US equities.  A modest 2% rise in revenues at Citi, hit hard by a decline in trading and investment banking activity, was brushed aside as investors focused on the 20% bounce in earnings. More will come later in the week, but at this stage of the economic cycle avoiding any nasty surprises becomes more important than heroic surges in performance, and the numbers put US stocks on a happier path for the week.

It is now up to the rest of the sector to do their bit. The Empire state index also beat forecasts, though it will take a shocker of a datapoint (either higher or lower) to change investor perceptions at present now that a July rate cut is all but certain. 

The prospect of further political disruption in Spain has weighed on the euro, as coalition talks being to fall apart. While investors have now assumed a Fed rate cut for the end of the month will occur, they are far less convinced that the ECB will act next week. But the case for action in the eurozone is even more compelling than in the US. The ECB’s longstanding delaying action, meant to buy time for fiscal stimulus that never seems to arrive, will have to go on a bit longer, it seems. 

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