Markets Friday will debate the merits of President Obama's $447 billion jobs package and monitor G7 finance ministers, who meet in France against a backdrop of weaker global growth and fears of financial contagion from Europe.
Europe's debt crisis will continue to hang over markets like a brewing storm, following Thursday's jump in some sovereign yields and the sell off in the euro currency. The euro dropped after the European Central Bank downgraded the economic outlook and brought a halt to its rate hiking policy.
President Obama speaks again Friday on his jobs creation program in Richmond, Va. at 11:40 a.m. ET. There is little economic news, with the day's highlight the wholesale trade data for July, released at 10 a.m.
Financial markets will also briefly halt trading in honor of victims of the 10th anniversary of the Sept. 11 attacks on the World Trade Center and Pentagon. Late Thursday, New York city officials said they would immediately increase security measures after U.S. officials learned of a possible terror threat associated with car and truck bombs, according to NBC News.
Jobs, Jobs, Jobs
The president Thursday evening proposed cutting employer payroll taxes in half for most small businesses, as well as giving a tax break for increased hiring. He also proposed $50 billion for road, rail and air infrastructure projects, another $10 billion to capitalize an infrastructure bank and a program to help local governments with modernizing schools and retaining teachers.
"It will provide a jolt to an economy that has stalled and give companies confidence that if they invest and they hire, there will customers for their products and services," said President Obama, as he called on Congress to approve his American Jobs Act proposal. He also asked that Congress cut spending to pay for the programs. Analysts expect Republicans to oppose any new spending initiatives.
He also urged approval of a series of trade agreements with Panama, Colombia and South Korea so American companies can increase the sale of goods in those countries.
J.P. Morgan economist Michael Feroli pointed out in a note that there was no mention of tax repatriation, which was expected. "That is is more likely coming from Jt (joint) Committee on Deficit Reduction," Feroli wrote in a quick note. "Obvious hurdle is getting Congress to pass and also find savings in Jt Committee for Deficit Reduction."
The president's much-anticipated speech followed a choppy day for stocks. The market drifted until the 1:30 p.m. speech by Fed Chairman Ben Bernanke but after he failed to detail the types of stimulus the Fed would consider at its September meeting, stocks sold off, ending a percent lower. The Dow closed at 11,295, off 119 points, and the S&P 500 was down 12 at 1,185.
As stocks fell Thursday, investors bought Treasurys, which inversely pushed yields lower. The yield on the 10-year slipped to 1.986 percent.
"We're probably going to stay low until we know what stimulus is going to arrive with the Sept. 21 (Fed) meeting," said John Briggs, senior Treasury strategist at RBS. "None of the newspaper articles have done anything to dissuade the market perceptions that more stimulus is coming." Analysts say it is most likely that the Fed will shuffle the duration of the securities it holds, replacing shorter duration holdings with longer duration Treasurys.
"Depending on whether there's a rabbit in the hat, I still think Europe's driving the bus," said Art Cashin, director of floor operations at UBS. He said the market was anticipating G-7 might take some major steps.
"There was some talk they might do something important as early as this weekend but after Bernanke tossed the ball until the 20th, I don't see it," said Cashin. The Fed starts its two day meeting Sept. 20 and issues its statement during the afternoon of Sept. 21.
The G7 is unlikely to accomplish much, according to David Gilmore of Foreign Exchange Analytics. Gilmore said he disagrees with speculation the finance ministers would provide a concerted group of stimulus moves. If they were to take action, it could include things like asset purchases by the Bank of England or a rate cut by the ECB.
"I think there's probably a need for some kind of policy response...but my expectations are low of anything coming of it," said Gilmore. "...You heard from (ECB President) Trichet and Bernanke today, and you got the same message from both of them - Don't look to us to generate growth. That's a fiscal issue."
Treasury Secretary Tim Geithner, who is attending the meeting, wrote in an op-ed in the Financial Times Thursday that the U.S. needs to carry out take steps to create jobs and generate growth, such as the president's plan. He also said European officials have to work together to inspire confidence in their resolve to solve their crisis, and China and other emerging markets need to adjust their economies to strengthen domestic demand and allow their exchange rates to respond to market forces.
Greece was in the news Thursday as talks with private sector investors on their participation in the bailout dragged on longer than expected. Jean Claude Juncker, head of the euro zone finance ministers, said Thursday that there can be no flexibility for Greece on its budget targets if it hopes to receive the next tranche of its bailout from the EU and IMF. Greece is due to receive 8 billion euros ($11.1 billion) and officials say it will run out of money within weeks if it does not receive the aid.
Later ECB policy maker Juergen Stark said in Tokyo early Friday that the working assumption is that Greece will deliver and that the ECB is standing by to intervene as long as low interest rates are not translating into lower lending rates. He also said measures are to be in place as long as needed.
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