Market Insider: Thursday Look Ahead
The action Thursday is again in Washington.
There are several key economic reports early in the day, but traders will also focus on the progress of the economic stimulus package and look for any new details on Treasury Secretary Timothy Geithner's financial bailout plan.
The House of Representatives is expected to vote on the $789 billion compromise stimulus package. It will then be up for a Senate vote by Friday, in time to meet President Barack Obama's President's Day weekend deadline.
"The focus is on Washington and what proposals will come out," said Art Cashin, director of floor operations at UBS. "There's retail sales and we'll be watching the 30-year auction." Cashin said the market is range-bound, and the S&P 500 could find resistance at about 840.
Retail sales for January will be reported at 8:30 a.m., and based on the reports from chain stores last week, the number will not be good. The consensus is for a drop of 0.8 percent but some economists expect a bigger decline. Also at 8:30, weekly jobless claims are released. Expectations are for a number of 610,000. Business inventories are reported at 10 a.m.
Coca-Cola, Aetna, Viacom, and Marriott are among companies reporting earnings ahead of the opening bell.
Stocks Wednesday treaded in a relatively narrow range after Tuesday's big sell off. Traders watched Washington where Geithner testified before the Senate budget committee and separately, eight bank CEOs explained what they are doing with TARP (Troubled Asset Relief Program) money before the House Financial Services committee.
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The Dow rose 40, to 7939 and the S&P was up 6 at 833, as Congressional leaders reached a compromise stimulus bill. Unlike Tuesday, when the lack of detail in Geithner's financial bailout plan roiled markets and pushed financial shares sharply lower, the financial sector gained 5 percent.
Perhaps reassuring were comments from the bankers that they plan to pay back TARP funds and don't currently intend to take more capital. The bank CEOs also said they don't know the full details of the Treasury's financial bailout or how it would affect their institutions.
Geithner Wednesday tried to explain his lack of clarity on the financial bailout plan. "I do not want to compound the mistakes of the last 12 months where things were rushed out before they were ready, and strategy had to be adapted because of that. Very important to me we do that and if that means there is going to be disappointment with the level of detail until we get it right, I will live with that disappointment because it is better than the alternative," he told the Congressional committee.
Bankers were asked about the Geithner plan in the House hearing. "I think the important part is that all of these things are done well. The devil is in the details and how they get executed. Some we know about," said J.P. Morgan Chase CEO Jamie Dimon before the committee.
"I think the TALF plan will work and serve a purpose. I think the guarantees will work and serve a purpose. I don't know yet the mortgage plans. It's important that take place with modifications, making it cheaper for Americans. I've got to see more detail on the stress test and capital injections. I do think if all these things are done well, and properly, it will have a very beneficial affect on this country," Dimon said.
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Traders Thursday will also be watching the auction of $14 billion 30-year notes as part of the Treasury's $67 billion refunding this week. The auction of $21 billion in 10-year notes Wednesday was mixed, but better than many traders expected. Morgan Stanley strategists said the investor participation in the auction was encouraging.
"With indirect participation at 38%, this 10-year refunding was the strongest since the February 2008 refunding. The indirects accepted / tendered ratio was also strong at 71%. In fact, this $21 billion auction was $1 billion larger than the refunding in November 2008 and it still was much stronger in terms of its auction statistics," they said in a note.
Miller Tabak's Tony Crescenzi called the auction mixed, but ok. He said, in a note, though it was in no way indicative of negative sentiment for Treasurys, but one negative aspect of the auction was the auction yield. "...2.818 percent was 3 basis points higher than expected, a sharp contrast to Tuesday's 3-year auction, whose yield was more than 5 basis points lower than expected."
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"Whether yields inch up for tomorrow's auction depends on the equity market, which along with the U.S. dollar, gold, and Treasuries has traded over the past two days in a way that indicates an intensification of worries about the U.S. banking system. What is nonetheless clear, by both yesterday's very strong auction and today's high level and quality of bids is that a safety net exists beneath Treasuries between current levels and yesterday's high yield, which for the 10-year was 3.0%," he wrote.
The dollar Wednesday slipped 0.08 percent against the euro, to a level of $1.2894. It was slightly higher against the yen. The 10-year's yield fell to 2.759 percent. Gold jumped $30.10 per troy ounce, or 3.29 percent to finish at $943.80.
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