Markets turn their focus back to the economy when third quarter GDP is released Friday, ahead of the market open.
"I'm expecting 2 percent GDP with a better mix, meaning final sales go from 0.9 up to 3 percent in Q3, and I think that improvement in final sales will carry over in the current quarter, where we see GDP at 3.3 percent," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank.
Traders say the GDP, while backward looking, will still be weighed for what it means to the Fed's deliberations on quantitative easing, when it meets next Tuesday and Wednesday. "They're going to do quantitative easing. The issue is how much. Related to that, it's about what's the tone," said LaVorgna. "..For whatever reason, if GDP turns out to be better and 10-year notes back up to 2.75 -- if that happens, it conceivably puts a little bit of pressure on the Fed to be more dovish in its statement."
Economists do not think the GDP report impacts the Fed's decision next week, but it does go into the mix of influences on its view of the economy's performance. GDP is released at 8:30 a.m., as is the third quarter employment cost index. Chicago purchasing managers data is released at 9:45 a.m., and consumer sentiment is released at 9:55 a.m.
Stocks Thursday started the day on an upswing, but gave up gains, headed lower and then drifted into the close. The Dow slipped 12 to 11,113, and the S&P 500 was down 1 point at 1183. The Nasdaq rose 4 to 2507, as tech led the market higher.
Tech, in fact, has been the winning sector in October, up 6.5 percent, as the Nasdaq gained nearly 6 percent. The Dow is up 3 percent for the month, and the S&P 500 is up 3.7 percent. The best performing Dow stock in October has been Disney, up 10.3 percent, and Bank of America, was the worst, down 12 percent. Materials were the second best S and P sector, up 5.6 percent.
October has been a hot month for commodities, with sugar up 22.3 percent for the month and rice, up 20 percent. Corn rose 16.8 percent. Gold is up 2.5 percent; silver rose 9.4 percent and copper gained 3.9 percent. Palladium jumped 10.2 percent. Oil rose 2.8 percent, while heating oil declined 1 percent, and gasoline rose 3.9 percent for the month.
The dollar Thursday lost more than 1 percent against the euro, to $1.3929, and 0.8 percent against the yen. Dollar/yen, at 81.04, saw its biggest decline since Aug. 30. The dollar is down 2 percent for the month against the euro and down 3 percent against the yen.
"Our medium term view is that the dollar is still under a lot of pressure because of policy, but in the very immediate term, we could see a choppy dollar with a bias to strengthen as some of these bigger QE (short dollar) positions, built up since September, get squeezed," said Michael Moran, currency strategist at Standard Chartered.
Treasury prices rose Thursday, and the auction of $29 billion in 7-year notes drew buyers, as investors focused on the Fed's expected announcement that it will restart its program to buy Treasury securities. Traders said the Fed circulated a survey among primary dealers, seeking their input on the size of the QE program and its potential market impact. Reports of that survey helped drive prices.
"It's not earth shattering that the Fed would talk to the primary dealer community about what they think will happen when they do QE. It's meaningless," said one trader, who said the Fed routinely sends dealer surveys. "It's much more that the reality is next week that we will get QE in some form." The 10-year yield slipped to 2.659 percent, and the 2-year was at 0.375 percent.
What Else to Watch
There are plenty of earnings reports ahead of the open, including Chevron, Honda, Sony, Merck, Cigna, Constellation Energy, Newell Rubbermaid, Progress Energy, Weyerhaeuser, ITT, Interpublic andEstee Lauder.
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