NEW YORK (
) -- What a difference a year makes: Twelve months ago, investors believed the eurozone was on the brink of collapse, and they seemed desperate for the European Central Bank to save the union by purchasing massive amounts of debt of the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain).
Fast forward to today: The European Central Bank hasn't bought a single bond through its Outright Monetary Transactions program, yet the union is holding together, yields are down, and, as Thursday's manufacturing PMI data show, the economy is stabilizing.
All proof, in our view, that investors' long-running eurozone collapse fears were overwrought. And sentiment is still too dour.
Investors are hyperfocused on the bank's decision to forego a rate cut on Thursday, suggesting they're still looking to the bank for salvation and ignoring the many signs of fundamental improvement. That's bullish for stocks globally.
Fact: Whether the European Central Bank keeps its benchmark rate at 0.5% or cuts it to 0.25% means zippo for the eurozone's economy.
As the bank's President Mario Draghi has long said, the bank's transmission mechanism is broken: A rate cut in Frankfurt won't impact borrowing costs and credit availability in Spain and Italy. It simply can't stimulate the areas investors believe need stimulating. Focus on European Central Bank policy is misplaced; it blinds investors to economic reality.
And reality isn't fabulous, but it still exceeds investors' expectations. Take the Manufacturing PMI, which hit 50.3 in July -- 0.2 percentage point higher than the initial estimate and the first expansionary reading since July 2011. Now, on its own, this singular data point says nothing about the eurozone's future growth. Monthly data are variable, and manufacturing isn't a leading economic indicator.
But the recent trend speaks volumes. Manufacturing edged higher but stayed choppy for several months after its July 2012 bottom, but we've now seen four consecutive months of improvement.
The composite services and manufacturing gauge, which better reflects the broader eurozone economy, tells a similar story. It, too, moved into expansionary territory in July, logging its fourth straight monthly improvement. All without an assist from the ECB.