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Stocks Tentative, Dollar Tumbles Further

Stocks greet the new week with some trepidation and search for direction ahead of the open. European markets are slightly lower after an overnight selloff in most Asian markets, with Japan down 2.2%. Major exporting stocks led the decline in Tokyo.

Shrinking Dollar
Traders will watch the dollar's continuing decline carefully. This morning the dollar hit a 15-year low against a basket of currencies.The double-edged drop helps U.S. exports, and has pumped up corporate profits, but also brings with it the threat of inflation as cheaper dollars compete with other global currencies to buy hard commodities and other assets.

The dollar lost 1.1% against the euro last week and 2.1% against the yen. With this move in the currency markets was a big flight to quality in Treasurys, particularly after the weak jobs data Friday. The yield on the two-year of 3.888% Friday was a two-year low and the yield on the 10-year of 4.368% was a 1-1/2 year low. Some of that move was reversed this morning.

Fed in Focus
With markets on high alert for any Fed comments, there are a few big moments today for investors to watch. First, Atlanta Fed President Dennis Lockhart speaks at 8:40 am New York time to the Atlanta Business Chronicle's Best in Business Breakfast Series. He repeats his Sept. 6 speech, but he will take questions. In that speech, Lockhart said he didn't see "conclusive signs that housing problems are spilling over in the broad economy." But that was before Friday's jobs data showed a shocking drop in monthly employment for the first time in four years.

San Francisco Fed President Janet Yellen speaks at 11 am at the National Association for Business Economists annual meeting. CNBC senior economic correspondent Steve Liesman will be covering the meeting and Yellen's speech. She may take questions at the San Francisco event. Other speakers at the event include Council of Economic Advisers Chairman Edward Lazear and former U.S. Treasury undersecretary John Taylor. Later in the day, Fed Governor Frederic Mishkin, an FOMC voting member, speaks to the Money Marketeers of New York University at 6:30 pm.

ECB to "Hold Line"
CNBC's Maria Bartiromo caught up with European Central Bank President Jean-Claude Trichet this past weekend and had an exclusive interview with him.

While we always want to know what the head of the ECB is thinking, these days his comments are even more important as global markets react to the perils in credit markets. Remember, it was Trichet who was first to the spigot when central banks began to flood markets with liquidity, and it is also in Europe where some of the subprime landmines have exploded.

Bartiromo tells us that Trichet says he "continues to expect global economic growth despite the U.S. subprime blow up." "He did, however, continue to indicate he would continue to hold the line on rate increases," she said. The ECB, unlike the Fed, had been in a tightening mode but amid market chaos, it has held off further tightening. CNBC will report more of the interview today.

Whither Stocks?
A round 249 points were sawed off the Dow after that negative jobs report Friday. The 1.87% decline takes the index to 13,113. It is still up 5.2% for the year. The Nasdaq Friday erased 48 points or 1.86%, and the S&P slumped 25, a 1.69% decline to 1453.

Vince Farrell, managing director at Scotsman Capital, said the market's fall was in part attributable to the fact that that jobs number may mean that earnings estimates are too high and need to be adjusted.

"Tough time for the market to do well when estimates are being cut. The consensus for the third quarter was for an advance of 6% on the S&P," Farrell writes to us. "So - best bet is the market has to retest the lows of the last few weeks which would be 12,800, or so, on the Dow. Bottoms always get tested. What I am worried about is the February low of 12,000 on the Dow was never tested, and I fear, that it looms out there," writes Farrell, a CNBC contributor. He does add though that 12,000 is not a prediction, just a concern.

Farrell also says the jobs data may give the Fed more urgency to act on rate cuts, something it would have done anyway.

"Gentle Ben (Fed Chairman Bernanke) signaled last week that he wouldn't be data dependent and would try to look around corners which I took to mean that he got it and would lower rates even if the data hadn't caught up with the reality that exists on the ground. So a rate cut, in fact a series of cuts, was coming at us. What does change is the level of urgency to get them implemented. They will start at the next meeting and the Fed is now "officially" behind the curve."

Stocks that Rock, Literally
Energy and financials, two stock sectors that continue to seesaw on opposite ends of the performance spectrum, are in the spotlight once again this week. Tomorrow, OPEC meets in Vienna. Ahead of that meeting, most OPEC ministers are backing the view that current output is sufficient to meet demand. Saudi Arabia, though, has yet to weigh in.

The S&P energy sector last week rose 1.09% along with a brisk move up in the price of crude. Oil, weaker this morning, finished the week at $76.70, up just 40 cents Friday, but up a big 3.6% for the week.

Faltering Financials
The financial sector has been under intense scrutiny for any signs of fallout from the subprime mess and related markets calamity. The S&P financial sector was one of the worst performers last week, dropping 2.6%, taking it down 9.14% from the level it was at when the market peaked in July.

CNBC's Mary Thompson will report today from Lehman Brothers conference on the financial sector.

A positive for Wall Street this morning is a report that KKR looks like it is taking steps to move along its acquisition of First Data. The Wall Street Journal this morning reports that KKR is willing to make some concessions to investment banks to secure the financing for this closely-watched deal. Sale of the debt financing is now expected to be launched midweek.

Iraq Report
General David Petraeus begins his much awaited testimony on Iraq before Congress today. The New York Times says Petraeus has recommended that decisions on reducing the main body of U.S. troops be put off for six months.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.