May's chain store sales and weekly jobless claims will be factors in the market Thursday, as credit worries still manage to haunt stocks.
Traders are also watching rate decisions from the European Central Bank and the Bank of England, ahead of the U.S. open. Traders do not expect rate moves as much as they are watching the language from these central banks to see just how hawkish they will be on inflation.
"It's a day the dollar will come under a test. You'll see how solid the dollar bounce is," says CNBC's Rick Santelli.
Weekly jobless claims are reported at 8:30 a.m. and are expected to come in at 373,500. Also of interest will be the quarterly delinquency and foreclosure survey from the Mortgage Bankers Association.
Philadelphia Fed President Charles Plosser speaks on the financial condition at noon in New York. His remarks follow Fed Chairman Ben Bernanke's two market moving speeches this week about the dollar and inflation.
Wednesday's market was waffling and moved nervously on credit-related headlines. Moody's comments that it would likely cut the ratings of the bond insurers MBIA and Ambacknocked those stocks (and the market) lower.
"The market was already worried and weakened by the Ambac/MBIA return. The credit thing is turning into a chronic issue. We thought it went away with Bear Stearns. But no, it's back. That buckled an early attempt to rally," said Art Cashin, UBS director of floor operations.
Lehman stock started the day weak but recovered some ground after analysts came to its defense. Both Merrill Lynch and Loomis made positive comments on the stock and Merrill up its rating on the stock to buy, saying the drop in its stock was overdone and speculation about the firm is unjustified. That helped both Lehman and the market but the financials ended the day down 0.8 percent.
CNBC's Charlie Gasparino reported Lehman was talking to private equityabout a possible capital infusion. Merrill analyst Guy Mozkowski said Lehman will probably have to raise capital and that it would probably have to do it as common stock because of its capital structure. Ladenburg Thalmann's Richard Bove made similar comments to us Tuesday and said Lehman would need $4 to $6 billion.
Hedge fund manager David Einhorn of Greenlight Capital, who has been outspoken about what he sees as problems at Lehman, will appear on "Squawk Box" Thursday morning.
American Express was a bright spot in the financial sector after it said earnings would grow 6 percent in 2008 though the economic environment remains challenging and it sees higher loan charge offs.
The markets are also watching for developments in Verizon's aquisition talks with Alltel, a story first reported by CNBC's David Faber.
Tech stocks continue to outperform. The sector was nearly a percent higher Wednesday, and the Nasdaq index rose 22 to 2503 while the Dow and S&P declined. The Dow was off 14 and the S&P was off 0.52.
The dollar was up 0.19 percent against the euro and was up 0.12 percent against the yen. Treasury yields rose, with the the year reaching 3.940 percent and the two-year yielding 2.431 percent.
A positive for stocks this week has been a steep decline in the price of oil. But that downdraft in crude put energy stocks under pressure for a second day. The energy sector declined 1.2 percent. Oil fell $2.01 to $122.30, giving it a 4.3 percent decline in the last two sessions. It was trading below $122 in the Asian session Thursday.
John Kilduff, senior vice president with M.F. Global, says he thinks oil could hit $120 by the end of the week and then test a level close to $110 in the next couple of weeks. Kilduff, a CNBC contributor, says there are plenty of signs of demand destruction, particularly from foreign governments which are stepping back from subsidies. The latest case was India which said it would raise the retail price for fuelWednesday. (see his blog)
What to Watch
Chain store sales will start coming out well before the bell. "The consumer is what I'm worried about," said Cashin. "I'll be looking to drill down on the store data to see how the consumer is doing."
Cashin said he thinks traders have been too optimistic about chain store results. "People have been grasping at straws. They saw Tiffany improve, but it improved because of European sales," he said.
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