Things are bad in the eurozone, economically speaking. The clearest proof of that was provided this morning by the European Central Bank (ECB), which left its key interest rates unchanged at 0.00%, 0.25%, and -0.40%, respectively, pushed out its expectation for those rates to remain at their present level at least through the end of 2019, versus prior guidance of at least through the summer of 2019, and reintroduced a targeted longer-term refinancing operation (TLTRO) that will start in September 2019 and end in March 2021.
That's not the monetary policy composition for an economy in good form -- far from it. That is the policy composition for an economy that is stuck in a low-growth rut and is considered to be at risk of sinking further into that rut.
The ECB's position can be categorized easily as being dovish-minded, which is why stock market participants appear to be pleased with how bad things are, economically speaking, and how good things are from a monetary policy standpoint. Low rates -- and even negative rates -- are manna for risk assets like stocks.
Sure enough, major bourses in Europe all lifted in the wake of the ECB announcement and the futures for U.S. indices saw a knee-jerk boost.
The question now is, how far can these equity markets run on a rehash of monetary policy that has already carried them a long, long way from their 2009 lows and which, in the case of the eurozone at least, didn't prove to be enough to extricate the eurozone from its economic morass for very long.
Will the persistence of low, and even negative rates, be the equivalent of pushing on a string? It's looking that way right now, because low, and even negative, rates that have been in place for more than five years haven't pulled through any escape velocity for the eurozone economy.
Que sera sera. For the time being, the ECB is ringing the bell and there has been a Pavlovian response in Europe to buy equities.
Futures traders in the U.S. aren't necessarily hearing the bell on the ECB move. There is more than just an ECB policy move to consider, though, which is why there hasn't been a moonshot in the futures trade.
There is the unsettled aspect of U.S-China trade negotiations; there is the realization that the S&P 500 is finding it difficult to stay above 2800; there is the unsettling performance of the Dow Jones Transportation Average, which has fallen for nine consecutive sessions, and the unsettling performance of the Russell 2000, which has dropped below its 200-day moving average; and there is the recognition that earnings estimates have come down as stock prices have gone up, raising concerns about stretched valuations.
We can't say this morning's economic data helped move the needle that much for the market either.
Initial claims for the week ending March 2 were low at 223,000 (Briefing.com consensus 224,000), as expected, while continuing claims for the week ending February 23 fell by 50,000 to 1.755 million. Q4 Productivity, meanwhile, increased just 1.9% (Briefing.com consensus 1.7%) while unit labor costs rose 2.0%.
The key takeaway from the productivity report was that the annual average productivity from 2017 to 2018 was a lowly 1.3%.
Currently, the futures for the major indices are registering modest losses, which is expected to translate into a lowly open for the cash market.