Thursday Look Ahead: Investors Watching Dollar, Cisco
Cisco's disappointing earnings news and the dollar could combine to be a drag on stocks Thursday.
The dollar has been finding supportfrom the mixed signals of improving U.S. economic data and concerns about another European debt crisis.
The greenback will be a focus on a number of fronts Thursday, as President Obama meets with G-20 leaders in Korea. The Fed's quantitative easing program, which has pressured the dollar, has been a point of friction ahead of the meeting. The dollar's decline has also helped fire up a global rally in stocks and other risk assets since the Fed first suggested it in late August.
Cisco could also be an influence. The company's stock fell a stunning 13 percent in late trading Wednesday, its worst post-earnings decline ever. Cisco, which said it sees capital spending moderating in some areas of its business, is closely watched as an indicator of business spending and confidence.
Cisco reported an 8 percent increase in earnings to $1.9 billion, or $0.34 per share in the latest quarter, up from $1.8 billion or $0.30 per share a year ago
The dollar was higher Wednesday against a basket of currencies , as stocks and some commodities closed higher. The dollar was off just slightly against the euro, but was firmer against the yen . The euro was at $1.3779.
"The dollar is getting stronger. It's at its highest level since October, and interest rates are getting higher. That should soften some of the criticism towards the U.S.," said Brown Brothers Harriman chief currency strategist Marc Chandler. He also said Treasury Secretary Tim Geithner will have to explain that the Fed's new easing program is intended to promote growth, not just drive the dollar lower.
"Emerging markets countries' share of U.S. imports has doubled since 2000. They need a strong U.S. economy," Chandler said. G-20 leaders are likely to say they don't believe in currency devaluation and they will promote domestic growth. Emerging countries, like China and Brazil, have been among the most vocal critics of Fed easing, and several countries have taken action to curb capital flows to keep their economies from overheating as the dollar weakens.
"They'll (G-20 leaders) make positive remarks about how they're going to to tighten up bank capital requirements. They'll make the right noises," Chandler said.
He also expects the euro to continue to weaken, as concerns build about Ireland's fiscal problems. Irish bonds spreads continued to widen to record levels against the German bund. "Ireland's in tough shape," Chandler said, noting that he thinks "the euro is heading down further" and and he expects it to finish the year at about $1.33.
"If anything I'm afraid I'm being too cautious, and the euro could be much lower," said Chandler.
What to Watch
There is no data expected Thursday, and the bond market is closed for Veterans Day. There are a few big earnings reports expected, including Kohl's , Siemens , Viacom and Anheuser-Busch Inbev . Disney reports after Thursday's closing bell.
The latest positives on the data front were a slightly better-than-expected weekly jobless claims report, at a still large 435,000, and a four-month low in the international trade gap. Economists said the narrower-than-expected September trade deficit of $44 billion puts U.S. economic growth in the third quarter at a higher level than the initial 2 percent reported.
The bond market was the one to watch Wednesday, as the 30-year bond auction triggered a fairly dramatic selling wave. The market later reversed as buyers stepped in after two days of losses. The auction of $16 billion in 30-year bonds met a chilly reception, driving the yield on the new issue to 4.33 percent, the highest yield in a little over five months.
"Seriously, it was like a twilight zone today. It felt like everything was falling apart, and then it got lined up as if it was pulled by some giant magnet," said George Goncalves, Nomura Americas Treasury strategist.
The market was also helped by the Fed's expected announcement that it would buy about $105 billion of Treasury securities in 18 operations between Nov. 12 and Dec. 9, the first of which will be Friday.
"It was the final blow off valve. I think it was just no one wanting to touch the 30-year unless it's at a cheap enough price. Once the supply cleared, we came right back," said Goncalves.
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