Already on Wednesday, investors were counting down to Friday's jobs report, and not much in between matters.
Thursday's main events include weekly jobless claims, data on productivity and costs, and monthly chain store sales, which are expected to be weak and show the U.S. consumer remains reluctant to spend. Also before the bell, New York Fed President William Dudley speaks at 8 a.m. on the government's Public Private Investment Program, the plan to clear toxic assets from banks' books.
Deutsche Bank chief U.S. economist Joseph LaVorgna said he expects the 8:30 a.m. release of weekly jobless claims to show about the same number of claims as last week's 631,000. He expects the unemployment rate on Friday to show an increase to 9.4 percent and a loss of 500,000 non farm payrolls.
LaVorgna said the jobs data is taking on increasing importance. For one reason, job losses impact the ability of the real estate market to recover, key to the economy's rebound.
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"Everyone's worried about the employment numbers," said Pete McCorry of Keefe Bruyette. "The bottom line is it's all coming down to whether the consumer feels comfortable about his employment, and whether he's going to feel like he's going to be able to pay his bills going forward."
The consensus estimate for the Friday employment report is that 525,000 non farm payrolls were lost in May, and unemployment jumped to 9.2 percent from 8.9 percent.
Patrick Kernan, who trades S&P 500 options, said he is watching that Friday jobs number too, but the trading activity he's seen this week does not suggest investors believe the jobs data will be dramatically worse than Wall Street's expectations. "Ordinarily, we'd start to see people buying short-dated options, in particular June. If you think something drastic is going to happen for this number, you'd see people come after the short-dated stuff," said Kernan.
"What it really means to me is nobody is expecting a huge shocker Friday," said Kernan, who trades for Cardinal Capital at the Chicago Board Options Exchange.
"If anything, we saw sellers of June options and people buying further out in September and December," said Kernan, adding that would suggest investors expect more market volatility later in the year.
Stocks were weak out of the gate Wednesday but closed well off their lows. The S&P 500 fell 12.98 to 931.76, and the Dow was off 65 at 8675. Traders also noted that the S&P 500 has held above its 200-day moving average (920), an area they expect it to test. "It's certainly on anemic volume ... It's a very, very quiet drift. I don't think you can read anything overly negative into it," said McCorry.
As stocks sold off, the dollar gained, commodities fell and buyers moved into Treasurys. Oil was down 3.5 percent, to $66.12. Natural gas fell 8.6 percent to $3.766 per million BTUs.
Markets Thursday should also see some news from overseas. Both the Bank of England and European Central Bank hold rate meetings, ahead of the U.S. open. The Bank of England is not expected to make any moves, but the ECB is expected to discuss its plans for quantitative easing.
Also early in the morning, President Obama gives a major speech in Cairo, then heads to Germany.
"It's seen to be one of the key foreign policy speeches of his first year, and it will probably sketch out a new vision of U.S.-Middle East relationships. It will be important not so much from an economic point of view, but from a political point of view," said Marc Chandler, chief currency strategist at Brown Brothers Harriman.
Middle East countries have been among the outspoken critics of the dollar as global reserve currency, but that seems to be changing for now. "Most recently Saudi Arabia, Bahrain and the United Arab Emirates have reiterated that they have no plans to abandon dollar pegs or sell their Treasury holdings," Chandler said.
As far as the ECB goes, it should make news, and that could impact the euro. Profit-taking hit the euro Wednesday as the dollar gained about 1.1 percent to a level of $1.4155 per euro.
"The (ECB) staff is expected to give new economic forecasts, and they are likely to be pessimistic, negative and defying talk of green shoots," said Chandler.
Chandler said the ECB will announce more details about its quantitative easing plan and may hint whether at whether it would consider expanding the plan if needed. The ECB plans to purchase $60 billion in covered bonds. "These are a very important part of the European mortgage market. The ECB, which is reluctant to participate in quantitative easing, is buying the safest investment vehicle in Europe," Chandler said.
Sterling slipped Wednesday after a fourth UK minister resigned, delivering another blow to Prime Minister Gordon Brown ahead of local and European elections. Recent opinion polls put Brown's Labor party in third place and raise doubts about whether he can lead the party to victory in general elections in the middle of next year. Brown has also refused calls for an immediate election, saying he and his party must lead the country out of recession.
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Wednesday's markets also traded against the backdrop of testimony from Fed Chairman Ben Bernanke before the House Budget Committee. Bernanke warned that the U.S. needs a plan to deal with its giant budget deficits, a focus of many investors in the bond market. Rates though moved lower Wednesday as investors bought along the entire curve . The 10-year's yield declined to 3.549 percent.
Bill Gross, co-CIO of Pimco, responded to Bernanke's commentsin an appearance on "Street Signs." In a note Wednesday, he had told investors in the new world, they have to expect slower GDP growth and lower investment returns. He recommended they play the front end of the yield curve where low yields and downside price protection is more probable. He also said holders of dollars should diversify their holdings before foreign Central Banks and Sovereign funds do the same.
"Global investors should be skeptical of Administration and Fed claims that a balanced budget, or at least a significantly reduced deficit, lies just around the corner," he said in the interview. "When in fact, this recovery is being driven by a $2 trillion annualized deficit and to take its place in the economy would require at least a trillion dollar increase in consumption and investment."
"Shop 'til you drop' is being replaced, I think, by save til the grave. A rather gruesome, but realistic metaphor for the future. The new normal as we see it," he said.
What Else to Watch
Fed Chairman Bernanke makes opening remarks at 8:45 a.m. at a conference on financial markets and monetary policy. No questions are expected. Separately,
the New York Fed's Dudley is attending the day long summit on the Public Private Investment Program, hosted by SIFMA in New York.
Cleveland Fed President Sandra Pianalto speaks at 7:50 a.m. at a conference in Kentucky.
Travelers , new to the Dow 30, holds an investor meeting at 12:15 p.m.
Sandler O'Neill holds its annual exchange and electronic trading conference in New York Thursday and Friday.
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