Traders expect a short and sweet Thanksgiving week, where investors will be reluctant to make new bets and markets could actually trade quietly.
"For the first time, U.S. actions are actually having material impact on Chinese economic policy, and they don't like that because they're seeing very, very strong inflationary pressures."
The holiday shortened week, however, does hold a few important events including the release of the Fed's November meeting minutes, where it decided on its quantitative easing program. There is also a condensed calendar of important data including existing home sales, durable good and revised third quarter GDP.
Talks in Ireland between the European Union, IMF and European Central Bank could result in news of a bailout to solve that country's banking crisis.
The U.S. Treasury auctions another $99 billion in notes Monday through Wednesday, and Hewlett-Packard releases earnings Monday as one of the last few important earnings reports of the quarter. Investors will also turn their attention to the consumer andtail, as the holiday shopping season officially kicks off on black Friday, the day after Thanksgiving.
"As we work our way through next week, my guess is we have clarity on Ireland and hopefully that doesn't just leapfrog us to Portugal and Spain," said Art Hogan, managing director at Jefferies.
In the past week, the focus was in part on China's efforts to curb rising inflation through new tightening measures. Fears that China's actions would slow global growth hit commodities, many of which ended lower on the week. Oil was down nearly 4 percent at $81.51 per barrel, and gold fell 1 percent to $1,352.20 per ounce. The Dow gained 10 points in the past week to finish at 11,203 and the S&P 500 was less than a half point higher at 1199.
The other focus has been Ireland, the latest flashpoint in the European sovereign debt crisis. The expectation of a resolution steadied the euro, and it was basically unchanged against the dollar on the week. The euro could firm in the coming week, if there is an agreement, said Michael Moran, senior foreign exchange strategist at Standard Chartered Bank, but he does not expect it to hold gains.
"The projection is it's going to take a more bearish tone from there," he said. He echoed the concern that Portugal could be next to face crisis, and the big fear—that much larger Spain may ultimately need help.
"I think 2011 is going to be harder than 2010 in terms of the sovereign crisis. Ultimately there has to be a holistic approach. This band aid approach isn't a good one," said Greg Peters, head of global credit research at Morgan Stanley.
The Fed's quantitative easing policy also continued to come under fire, including from Congressional Republicans who seek an end to the program. There will be continued focus in the week ahead on the easing program, under which the Fed is buying $600 billion in Treasury securities in an effort to drive rates lower and reflate asset prices.
Fed Chairman Ben Bernanke Friday fought back against critics by suggesting China and others are causing problems by stopping their currencies from strengthening.
"Before this, the U.S. simply tried to use jawboning and threats to get the Chinese to move, but now with QE their policy action is actually having a material impact on Chinese growth and inflation," said Boris Schlossberg of GFT Forex. "...that is why the war of words has really escalated because for the first time, U.S. actions are actually having material impact on Chinese economic policy, and they don't like that because they're seeing very, very strong inflationary pressures."
"I don't think it was intended. I think it's in a way an unintended policy consequence that happens so many times in the marketplace," he said.
Since the Fed started its asset purchase program, interest rates have firmed, opposite to the desired effect. With the exception of the long bond, rates moved higher into the past week. The 10-year was yielding 2.871 percent, after touching 2.9 percent Thursday.
"Rates look too high to me given what the Fed's doing in terms of purchases," said Peters. "I think on the margin, stocks are the clearest expression of the quantitative easing trade. The dollar is tough. I still think the pressure is going to be on the dollar, but the truth is it's hard to get too tough on the dollar as the euro is under stress."
"Honestly, the biggest risk we have globally is basically political risk," said Peters. He said the bond market is reflecting that. "There's concern about the Fed. If there's ever a whiff that the Fed loses its independence, it's game over."
A full week 's worth of data has been funneled into Tuesday and Wednesday. Third quarter GDP and existing home sales are reported Tuesday. Weekly jobless claims, durable goods, personal income, consumer sentiment, new home sales and the Fed minutes are reported Wednesday.
Hewlett-Packard earnings are reported after the bell Monday.
Campbell Soup, Hormel Foods and Medtronic report Tuesday.
Deere and Tiffany report Wednesday.
More From CNBC.com:
- Going to a Holiday Party? Here's What to Bring
- For the Laughs: Holiday Gifts 2010
- Foreclosure Ghost Towns Come Back to Life
- Follow me on Twitter @pattidomm.
Questions? Comments? Email us at firstname.lastname@example.org