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Thursday Look Ahead: Retail Sales Should Surprise to the Upside, Consumer Less Tentative

March chain store sales reports are likely to be a pleasant surprise for markets, and they should also show that the American consumer has become a little more willing to spend.

Just as March auto sales showed stronger than expected demand, traders expect retailers to report that consumers spent more than previously expected at chain stores and malls in March. Economists have been seeing beginning signs that the consumer is contributing more to the economy, even with persistently high unemployment.

The retail sales should support the same trend. "You have a combination of things happening, one of which is easy comparisons. That certainly helps but what I think was unique to March is probably you had some pent up demand from February," said Jefferies retail analyst Daniel Binder. February sales were better than expected, despite heavier than normal winter storms.

"You probably have some spillover into March, and you had the weather break early which probably pulled business forward..Then you had the Easter shift happening and on top of that you had an underlying improvement in consumer spending" said Binder. "..some of that is just a year to year confidence coming back, some of that is credit improving."

Thomson Reuters Same Store Sales index forecasts a 6.3 percent improvement in March, the best gain in three years. Thomson Reuters says analysts expect discount stores to do the best, with sales up 8.5 percent. Teen apparel, which has been depressed, is likely to improve 7.4 percent, according to the estimates. March sales declined 5.2 percent last year, according to Thomson Reuters.

Some of the stores expected to see the best gains include Kohl's, up 12.4 percent; Aeropostale, up 11.2 percent; Nordstrom, up 10.6 percent, and Costco and B.J.'s Wholesale, both up 9.3 percent. The Gap is expected to see an increase of 3.7 percent, TJX could be 6.5 percent higher, and Target is seen up 7.8 percent.

Binder said the retail stocks probably have a ways to run, but they could see a pull back Thursday if investors choose to sell on the news. "I am positive about tomorrow's sales results from an investment stand point. Some of these stocks have traded up into the numbers," he said. Binder said he is hearing anecdotally on retailers' conference calls that more credit is available to consumers, and they are able to get more pre-approvals for customer purchases.

"You listen to some of these calls, and whether it's Lowe's or Best Buy or Kohl's they start talking about approval rates improving," he said.

Investors are also watching the weekly jobless claims report at 8:30 a.m. to see if it continues to show a trend of declining claims.

There is a second day of hearings by the Financial Crisis Inquiry Commission, and Citigroup will be on the hot seat. Former Citigroup CEO Chuck Prince is expected to testify, as is former Treasury secretary and Citigroup executive Robert Rubin.

Treasury Secretary Tim Geithner will visit China Thursday, where a big topic is expected to be China's currency. Fed Chairman Ben Bernanke speaks at a Washington event at 8:30 p.m.

Whither Markets

Stocks Wednesday threatened a more than 1 percent decline, but pulled back from lows just before the close. The Dow was off 72, at 10,897, a decline of 0.7 percent, and the S&P fell nearly 7 to 1182, a drop of 0.6 percent. Energy stocks were among the worst performers, losing 1 percent as oil declined to $85.88 per barrel.

Some traders blamed comments from Kansas City Fed President Thomas Hoenig for souring an already weakening stock market. Hoenig said, in a 2 p.m. speech, that the Fed should put the market on notice and that low interest rates for too long a time could lead to another bubble. Hoenig has been the lone dissenter on record against the Fed's policy of keeping rates low for an "extended period."

Fed Chairman Ben Bernanke also spoke Wednesday, saying the economy is not yet out of the woods.

"A lot of these things anecdotally are going to cause movement in a very thin market," said Pete McCorry of Keefe Bruyette. "You're purely emotion driven here."

McCorry said during Wednesday's trading that he had an unusual amount of callers, who asked about even the smallest stock market moves. "The trend has not broken. I just think people are on a hair trigger," he said.

The dollar gained another 0.4 percent against the euro, as Greece continued to worry markets. Reports of a wider deficit circulated as Greek bond spreads widened.

Stocks caught a slight bid in the middle of the day after Wednesday's surprisingly strong $21 billion 10-year Treasury auction. Traders had been wary of the auction, since it came in the same week the 10-year yield had temporarily moved above the psychological 4 percent level. The 10-year Wednesday went from a high yield of 3.968 to a low of 3.853 percent. It finished the day at 3.863 percent.

Bond Buyers Abound

CRT Capital strategist Ian Lyngen said there were technical factors behind the move in Treasurys, which saw buyers ahead of the auction. "The technical part of it was more the driver and Greece was more the excuse," he said.

"We saw not only a strong direct bid, but also impressive indirects. In fact, dealers took down the least of the auction from a percentage basis since February, 2006," he said. The indirect bidders can include foreign central banks.

"It helps confirm the idea we're not going to be breaking into a new higher range, but we need to consolidate here, and close the week better before we are convinced of that," he said.

The final major Treasury auction of the week will be held at 1 p.m., when the government auctions $13 billion in 30-year bonds.

Stocks to Watch

US Air and UAL , the parent of United Airlines, are in merger talks again. The initial New York Times report sent both stocks higher in after hours trading.

Apple is expected to debut the newest operating system for its iPhone at 1 p.m.

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.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.