US markets are bracing for a shakeup Friday after investors fled risk assets globally on concerns about Dubai's debt rescheduling.
Markets worldwide reacted to concerns about bank exposure to the debt, particularly in Europe, and fears it is a signal of greater problems in emerging markets.
US markets were closed, but the dollar was initially lower but bounced and traders said stocks pointed to a sharply lower opening on Friday. Click here for the latest futures quotes.
Dubai said Wednesday it would seek to reschedule debt of its flagship investment fund, Dubai World, and worked to reassure investors Thursday. Click here for story.
The news comes as investors are closing out the year, many with sharp gains. It also comes at a time when there's been heavy buying by funds and others seeking the comfort of US treasurys.
The Dubai story was the topic of concern Wednesday but many traders made an early exit ahead of the holiday and stocks traded quietly.
Whether investors are at their desks or at the mall, Black Friday shopping will be a theme of the shortened post-Thanksgiving session.
"I think that one of the biggest surprises we're going to see this year and one of the big drivers expected in the consumer discretionary group is just how good the first look at Black Friday is going to be," said Art Hogan, managing director at Jefferies.
Black Friday is the traditional make or break day for retailers' holiday sales, even though it isn't always the busiest. This year, stores are once more hyping door buster discounts to lure in shoppers, but analysts say retailers have a much better handle on inventory this year, so the holidays should not bring the red ink seen last year.
The stock market ended a quiet session Wednesday, with the Dow up 30 at 10,464 and the S&P 500 up 4 at 1110. The best performers were materials, riding 1.5 percent higher on the weakening dollar, followed by consumer discretionary, up 1 percent. Some of those consumer names included Tiffany , which upped its forecast, TheLimited , J.C. Penney , Abercrombie and Fitch , Nordstrom , Kohl's , Macy's and Coach .
U.S. markets are closed for Thanksgiving and opened for a shortened session Friday. Gold Wednesday hit another record high at $1,190 an ounce, while the dollar index fell to a 15-month low. The greenback took a pounding against the euro, which was trading above $1.51 Wednesday, breaking out of its recent trading range. The dollar also slid to multi-month lows against the yen and Swiss franc.
There is no data Friday. Wednesday's economic reports were mostly better, with consumer spending up 0.7 percent, after a 0.6 percent decline in September. Incomes also gained, up 0.2 percent. Also encouraging was that weekly jobless claims fell to 466,000, below the expected 500,000 level for the first time in more than a year.
But durable goods declined 0.6 percent on weaker demand for machinery, and without transportation that number was a decline of 1.3 percent. Economists had expected a gain of 0.5 percent. The number is viewed as volatile.
Treasurys were initially weaker on the data Wednesday but were higher after another successful auction -- this time $32 billion in 7 years. "Demand shows no sign of being sated. It's a very good comment on the auction process," said David Ader, Treasury strategist at CRT. The Treasury auctioned $118 billion in notes this week.
Ader said the buying in Treasurys, which has pushed yields sharply lower in the shorter durations, is driven in part by the month end and year end. Some fund manager, he said, "may want to book profits, ring the register and take risk positions down. If that's the case, it means selling out of their spread positions, credit and other things and putting them back into Treasurys," he said.
GFT Forex.com's Boris Schlossberg said Wednesday it's clear investors are looking to raise their comfort level. "The dollar continues to get destroyed every day in he currency market, yet we're seeing record low yields in the Treasury auctions. We're seeing a whole subset of the population that is clearly looking for risk aversion."
The VIX, the CBOE volatility index, fell close to 20, a level not seen in more than a year. Its decline could be seen as a signal of reduced downward volatility in the market, and it often falls when stocks rise but Dan Deming of Stutland Equities, who trades the VIX, said watch for its current action as a possible contrarian indicator. "If you see the VIX go to a new low and it coincides with the market going to new highs, that's a point where you really want to be cautious," he said.
Deming said futures for January and February have a high premium. "To some degree, you're seeing some upside pressure on the futures so people are looking to buy at least some protection here for some kind of move in January or February, but not in December," he said.
While the VIX has declined from the record highs of the past year, it still remains well above the lows it reached in the early part of the decade.
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