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Friday: US Data in Focus Ahead of Three-Day Weekend

Worries about Greece, its problems far from solved, have temporarily been put to the side, as traders shift focus to the more mundane January retail sales report Friday.

Oliver Quilla for CNBC.com

January sales are expected to come in with a slight gain of 0.3 percent, compared to December's 0.3 percent decline. Economists forecast that if autos are excluded, sales would be up 0.6 percent.

"Flat to positive is going to be fine, and that's about it. Then we skate into a long weekend, and nobody's going to make a big bet going into a long weekend," said Jefferies managing director Art Hogan.

The 8:30 a.m. retail sales report will be followed by consumer sentiment, reported at 9:55 a.m.

Stocks sprang higher Thursday, and investors put money back into risk assets globally as fears about Greece waned and China reported a rise in lending and slower inflation. The Dow was up 105 at 10,144 and the S&P 500 rose 10 to 1078.

David Gilmore, market strategist with Foreign Exchange Analytics, said the outcome for Greece is far from clear. European Union leaders issued a statement in support of Greece and passed the problems on to EU finance ministers, who meet Monday.

"There's a very vague response so far," said Gilmore. He does not expect any further details until the finance ministers meet. "They insinuated they took default risk off the table. That's constructive, but I don't think it's sufficient to take markets away from this concern on sovereign credit debt in Europe," he said.

Gilmore said Greek debt spreads had widened again at the end of Thursday, but not to the widest level of the day. "You have to look at what the Germans and French come up with. There's talk that the state owned bank KFW could buy Greek bonds, and then there's also some talk that they guarantee German investors who buy Greek bonds," he said.

Euro Trashed, But Not Broken

The euro was weaker on the day but finished off its low, at $1.383.

"I think there's more room for the euro to go down, and this is the 'Catch 22' of the story," said Gilmore. "The Europeans are quite happy with the weakness in the euro. They need exports to grow...maybe there's a sort of threading of the needle in the EU response. They don't want to be comforting and too reassuring on a plan to rescue Greece and draw the euro back up, and as long as they can take contagion out of the picture and keep the euro weak, that's the sweet spot."

Correction?

The big question for stock investors has been whether the market has been in a sell off that will finally give stocks a real 10 percent or greater correction. "We've had eight 'corrections' since March, all of them between 5 and 7 percent. Everybody's looking for something on the order of 10 to 15 percent..This one didn't prove to be it either. It was 8.3 percent..maybe this is it," said Hogan.

Hogan said the real concern for stocks is whether China demand will slow before the global economy gains enough traction to sustain the recovery. China's move to tighten bank lending has been spooking the market for several weeks. "Every time they sort of talk about it, the market rolls over a bit. That's much more important than what's happening in Greece and Spain right now," he said.

"If we focus on what's important to U.S. equities, and the drivers are in the United States, then things are fine," he said.

Action at the Auctions

Other than Tuesday's 3-year auction, the February refunding was a bit disappointing. However, it revealed some interesting dynamics Thursday. The government's auction of $16 billion in 30-year bonds saw weaker demand, with a bid to cover ratio of 2.36, below a 10-auction average of 2.48.

"We had a direct bidder that took 24 percent. I don't recall ever seeing one that big," said one trader. Direct bidders are bidders that are able to deal directly with the Fed. Many traders say they don't remember double-digit bids in the category prior to the credit crisis.

Indirect bidders, which could include foreign central banks, were just 28.5 percent, well below the 40 percent average and the lowest level since November, 2008.

While traders did not name names, they said the type of players that could have participated as direct bidders include big money managers, bond funds, mutual funds and even foreign banks. But one trader said it's highly unlikely foreigners participated in this category, and it may be some institutions that are aspiring to be primary dealers.

Some traders said even though the Fed has ended its program to buy Treasurys, the purchases almost looked like the type of buying the government could do. They note that there seems to be a consistent large buyer or group of buyers in the direct category.

Going into the auction, yields on the long end were at a one-month high. The 30-year finished at 4.67 percent and the 10-year rose to 3.69 percent.

Questions? Comments? Email us at 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.

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