Some days are easier than others to figure out what is on the stock market's mind. This is one of those easier days, as the early strength in the futures market is rooted in thoughts of easy monetary policy and low interest rates that bolster the appeal of risk assets.
We're not just talking easier monetary policy and low interest rates in the U.S. Rather, we're talking easier monetary policy and low interest rates around the globe.
On Wednesday, the Federal Reserve seemingly planted the seeds for a rate cut in the near future. Today, the Bank of Japan left its key policy rate unchanged at -0.1% and said it will likely be maintained there at least through around spring 2020. Reserve Bank of Australia Governor Lowe, meanwhile, said in a speech that expecting another rate cut is not unrealistic.
The Bank of England for its part left its key policy rate unchanged at 0.75%, as expected. It is still holding to the line that it thinks an ongoing tightening of policy at a gradual pace is likely if the UK economy develops as expected. That view, however, isn't necessarily spooking the market because it was joined with an admission that downside risks to growth have increased.
In any event, sovereign bond yields have fallen appreciably overnight. The UK 10-yr gilt yield is down seven basis points to 0.80%; the 10-yr Japanese government bond yield is down three basis points to -0.17%; the 10-yr German bund yield is down three basis points to -0.32%; and the 10-yr Treasury note, which slipped below 2.00% overnight, is down three basis points to 2.00%.
The U.S. Dollar Index has also fallen. It is currently down 0.5% at 96.63. The weakness in the greenback, along with the curve steepening and seeming promise of an interest rate to come, has helped drive gold futures up 2.8% to $1386.00/troy ounce.
Oil prices ($55.62, +$1.86, +3.5%) are also rallying. The weaker dollar is helping there, too, but the thrust of oil's move is tied to a report that Iran shot down a U.S. drone, which Iran said crossed into its territory.
Turning back to the equity market, there is little question that it is going to start on an upbeat note.
The S&P futures are up 29 points and are trading 1.0% above fair value. The Nasdaq 100 futures are up 109 points and are trading 1.5% above fair value. The Dow Jones Industrial Average futures are up 230 points and are trading 0.9% above fair value.
If the S&P futures indication were to hold, or strengthen, the S&P 500 would open at a new all-time high. This morning's economic data didn't threaten the indication, yet we're not entirely sure if the market spent much time at all even considering it, as the market is so clearly fixated on monetary policy and thoughts of further easing by the world's leading central banks.
On a similar note, it doesn't appear as if the market is focusing all that much on the basis for further easing (i.e. a slowdown in growth) so much as it is focusing on the notion of the central bank put standing as a stopgap (literally and figuratively) for negative price action in equity markets.
With respect to this morning's data, the Q1 Current Account Deficit was $130.4 billion (Briefing.com consensus -$125.0 billion) versus a downwardly revised $143.9 billion (from -$134.4 billion) for the fourth quarter; the Philadelphia Fed Index fell to 0.3 (Briefing.com consensus 11.5) from 16.6 in May; and initial claims for the week ending June 15 dipped by 6,000 to 216,000 (Briefing.com consensus 220,000).
Ho-hum... the economic data was just a momentary headline distraction for a stock market that is enraptured by easy monetary policy.