Originally posted at Briefing.com
There is an interesting swirl of optimism surrounding the stock market this morning in the wake of reports that Russia and Ukraine have reached a ceasefire agreement, effective February 15. It is an agreement that is essentially an agreement to follow the prior ceasefire agreement that had been violated. The S&P futures are up 9 points and are trading 0.5% above fair value.
Markets are understandably encouraged by the prospect of a more peaceful condition in the region, yet with all parties acknowledging that a lot more work still needs to be done, and the precedent of having violated the original ceasefire agreement, there is still some reason to eye the accord with some skepticism.
Moving on, Sweden's Riksbank provided a ray of trading hope with a decision to lower its repo rate to -0.10% and to institute a quantitative easing program whereby it will purchase 10 billion kronor in government bonds. That decision of course was precipitated ultimately by weak economic conditions, so the market continues to feed off the perverse logic that bad economic news is good news.
Closer to home, it was reported that retail sales declined a worse than expected 0.8% in January (Briefing.com consensus -0.4%). Similarly, retail sales excluding autos declined a worse than expected 0.9% (Briefing.com consensus -0.4%).
The downturn in sales was driven by declines in motor vehicles and parts dealers (-0.5%) and gasoline stations (-9.3%), which saw a huge drop in conjunction with the recent plunge in gas prices.
[Check Out: Oil Playing Games with Geopolitical Chessboard; Will We See a Repeat '98 Ruble Crisis?]
Core retail sales, which exclude autos, gas, and building materials, were up 0.2%. Doesn't sound bad on the surface, but when juxtaposed with the 0.7% increase in aggregate earnings that was seen in the January employment report, it reflects an ongoing propensity of consumers to save money rather than spend it — and that's even with the sharp drop in gas prices.
We're inclined to characterize this retail sales report as a disappointment. Notably, the Treasury market reversed earlier losses and now yields are down across the curve versus being up previously off the Russia-Ukraine headline.
The weekly initial claims report didn't help the economic sentiment. Claims for the week ending February 7 rose to 304,000 (Briefing.com consensus 285,000) from 279,000 the week before. That's still at a level that should be consistent with nonfarm payroll gains in excess of 200,000, but directionally it is a disappointing headline when matched with the retail sales number.
The continuing claims number for the week ending January 31 dropped to 2.345 mln (Briefing.com consensus 2.395 mln) from 2.405 mln.
Outside of the economic data, corporate earnings news since yesterday's close has been generally good. Cisco (CSCO) is a headliner in that respect, topping analysts' quarterly expectations and issuing reassuring guidance. Tesla (TSLA), on the other hand, is a luminary that disappointed on both its top and bottom lines. CSCO is up nearly 8% in pre-market action while TSLA is down 8%.
Lastly, there is still no agreement between Greece and the troika. Watch for continued headline volatility there.
Additionally, watch for continued volatility in the stock market. The basis for unquestioned optimism isn't there.
