Morning Market Update

Jobless Claims and Retail Sales Cause Gains to Wane

The US equity markets are off of the best levels of the day and the bulls are clinging to modest gains after a slightly higher-than-expected increase in weekly initial jobless claims is dimming some of the luster that came from yesterday’s upbeat report on private-sector payroll growth ahead of tomorrow’s key labor report. However, seasonal factors and the winter weather along the East Coast is tempering the pessimism from today’s jobless claims data. Also, sentiment is waffling as a plethora of December same-store sales results from the nation’s retailers are coming in softer than expected, headlined by Target Corp’s disappointing results that it said were impacted by snowstorms that hit the East Coast and higher-than expected sales of lower-margin merchandise. Treasuries are higher following the employment and retail sales data. Overseas, Asia was mixed but Japanese markets hit an eight-month high on a weaker yen, while some favorable economic data across the pond is buoying European stocks.

As of 8:50 a.m. ET, the March S&P 500 Index Globex future is 1 point above fair value, the Nasdaq 100 Index is 4 points above fair value, while the DJIA is 21 points above fair value. Crude oil is $0.17 lower at $90.13 per barrel, and the Bloomberg gold spot price is down $7.28 at $1,371.05 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 80.37.

The nation’s retailers are reporting December same-store sales results—sales at stores open at least a year—headlined by Target Corp. (TGT $59), which announced a 0.9% year-over-year (y/y) increase, compared to the 4.0% gain that analysts surveyed by Reuters had anticipated. TGT said December sales were below expectations, as strength in grocery and apparel was offset by softness in electronics, toys, and some home categories. Also, the company added that some key gift-giving categories moved earlier into the holiday season, and lower margin items drove a higher portion of sales than expected.

Meanwhile, Costco Wholesale Corp. (COST $71) reported its December same-store sales grew 6.0% y/y, including gasoline sales and foreign exchange, just shy of the 6.2% that the Street had forecasted, and excluding fuel and currency, sales rose 4.0%.

Department store chain, Macy’s Inc. (M $25), achieved 3.9% y/y growth in same-store sales for December, below the 4.4% gain that analysts had anticipated. The company said snowstorms disrupted after-Christmas shopping along the East Coast, but sales were “strong” at both Macy’s and Bloomingdale’s.

Inside the mall, Gap Inc. (GPS $22) said its same-store sales declined 3.0% y/y, versus the 2.8% growth that the Street had forecasted, and Limited Brands Inc. (LTD $30) announced that its sales rose 5.0% y/y, above the 4.6% increase that analyst had expected, while Abercrombie & Fitch Co. (ANF $55) posted a 15% y/y jump in sales, topping the 10.8% rise that was expected.

Jobless claims rise more than expected but seasonal factors may have played a role

Weekly initial jobless claims rose by 18,000 to 409,000, versus last week's figure which was upwardly revised by 3,000 to 391,000, and the 408,000 level that economists surveyed by Bloomberg had expected. However, the four-week moving average, considered a smoother look at the trend in claims, fell by 3,500 to 410,750, and continuing claims dropped by 47,000 to 4,103,000, above the forecast of economists, which called for continuing claims to come in at 4,080,000. The rise in initial claims was tempered by seasonal factors that may have impacted the results, along with the severe winter weather that hit the East Coast recently.

Treasuries remain higher following the employment data. The yield on the two-year note is down 2 bps to 0.69%, the yield on the 10-year note is 4 bps lower at 3.43%, and the 30-year bond yield is losing 2 bps to 4.53%. Yields rose solidly yesterday on the heels of favorable employment service sector activity data.

Europe rises as materials gain ground

The equity markets in Europe are higher in afternoon action, led by strength in materials as commodity prices rebounded yesterday from their recent slide and as traders digested some favorable economic data across the pond. A gauge of euro-zone economic confidence among executives and consumers rose to 106.2 in December, from 105.1 in November, and compared to the increase to 105.8 that economists had expected. The index reached the highest level since October 2007. Moreover, factory orders in Germany—Europe’s largest economy—rose more than five times what was forecast month-over-month (m/m) in November and jumped 20.6% y/y, compared to the expectation of a 15.9% y/y increase. These favorable reports are overshadowing separate releases that showed UK PMI Services fell back to a level depicting contraction in activity and euro-zone retail sales unexpectedly fell in November.

Elsewhere, technology issues are contributing to the advance in Europe, as shares of ARM Holdings Plc. (ARMH $22) are solidly higher after Dow member Microsoft Corp. (MSFT $28) confirmed that it plans to develop a Windows operating system that will run chips designed by ARM Holdings.

The UK FTSE 100 Index is up 0.5%, France’s CAC-40 Index is gaining 0.8%, and Germany’s DAX Index is advancing 1.2%.

Asia mixed as Japanese markets rise on weak yen

Stocks in Asia finished mixed with the largest move coming out of Japan. The Nikkei 225 Index rose 1.4%, to the highest level since mid-May, courtesy of strength in export issues on optimism toward profits of companies that rely heavily on sales overseas on the heels of the largest drop in the Japanese yen versus the US dollar since September 15, per Bloomberg. The solid decline in the yen followed upbeat economic data in the US yesterday, which boosted optimism regarding the health of the world’s largest economy. However, market moves elsewhere in the region were more subdued, as stocks in China finished mixed, with the Hong Kong Hang Seng Index rising 0.1%, while the Shanghai Composite Index declined 0.5%.

Also, Australian equities managed to overcome a report showing building approvals in the nation fell more than economists had anticipated in November, as the S&P/ASX 200 Index gained 0.2%. Mining firms rebounded somewhat from recent weakness in commodities prices and concerns about the impact of severe flooding in the region on the sector. A separate report showing Australian service industry activity improved slightly may have helped support sentiment. Meanwhile, South Korea’s Kospi Index decreased 0.2%, after reaching a record high intraday, with financials leading the decline on reports that the nation’s biggest banks would offer support to firms in the sector that have exposure to troubled real estate loans, per Reuters.