Wednesday Look Ahead: As Europe's Leaders Drive Markets, Focus Turns to US Data and Geithner

European leaders are in the driver's seat when it comes to markets Wednesday, but traders will also be taking a hard look at U.S. economic data to see if the string of negative surprises is coming to an end.

Retail sales and producer price inflation (PPI) data are released at 8:30 a.m. ET, and business inventories are released at 10 a.m.

Treasury Secretary Timothy Geithner heads to Poland later in the week to meet with European finance ministers, as they discuss the sovereign debt crisis. But on Wednesday, he is in New York and on CNBC. Geithner will be giving the 8:30 a.m. ET keynote presentation, moderated by CNBC's Jim Cramer, at the "Delivering Alpha" conference.

The conference is co-hosted by CNBC and Institutional Investor, and features a long list of major investors and Wall Street executives. Pershing Square Capital's William Ackman is expected to unveil his next big investment idea at the event.

Greek Drama

Stocks finished higher Tuesday as the fears of a disorderly default by Greece subsided, and European equities markets and bank stocks turned higher. German Chancellor Angela Merkel worked to shore up the view that the euro zone will stay in tact Tuesday. The Dow ended up 44 at 11,105, and the S&P 500 was up 10 points to 1172.

On Wednesday, Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou hold a conference call at 7 p.m. Athens time. The euro was higher ahead of the call and was firmer in Asian trading, after rising in New York to as much as 1.3739.

"You wonder why they would play this up if they don't think there's something they're going to say that's constructive," said Robert Sinche, global head of foreign exchange strategy at RBS. "On the other hand, the markets have come to the conclusion that this play is near its final act, and everybody's pretty sure they know how it ends. It is an interesting one. You would think if the real process now is preparing their domestic banking systems for an eventual restructuring, there would not be a lot of sense to still be having international dialogues. I would say it's a bit unusual to go forward with something like this."

Sinche said the markets are convinced there will be a restructuring although Greece has been working to secure the next tranche of loans from the IMF, EU and European Central Bank to stave off default.

"I think the expectations are it's going to be fairly orderly. I just don't know why there is a need for them to to go and say something now because presumably the Greeks aren't ready to go there (restructuring). They've done a new package. The IMF has said it may meet their criteria," he said.

IMF Chief Christine Lagarde Tuesday said the idea that emerging economies could purchase euro zone debt is an "interesting development." The idea surfaced in Brazil as Brazil Finance Minister Guido Mantega announced that the BRICS countries would meet ahead of the IMF meeting in Washington next weekto see what they could do to help Europe. The discussions are said to be in early stages.

Low Bar

Some of the gloom over stocks lifted Tuesday, as the market traded relatively quietly in the absence of any negative blast from the euro zone.

"It's all about expectations. The difference between now and six months ago is that then the expectations were pretty lofty. Now, the expectations are pretty minimal," said Andrew Burkly, director of equity strategy research at Brown Brothers Harriman. He said Europe remains a wild card for the stock market but it's encouraging that the market is showing some resilience.

"You could argue we're trying to carve out a bottom," said Burkly. "Upside moves haven't been that dramatic, which is a concern of ours. Down days are stronger than up days. The most optimistic outlook here is that maybe 1100 (on the S&P) represents the low, and we may be grinding back and forth for a couple weeks.

That would put us into October and then if you could see some of the macro data turning around, our sense is maybe we're past the worst in terms of the economic data and that could propel us in the fourth quarter," Burkly said.

August retail sales are expected to come in at 0.3 percent, and 0.4 percent when automobiles are not included. "Retail sales have been pretty good. The auto sales were okay. They are definitely trying to bounce back. I think they're going to be okay. Even consumer discretionary stocks have held up pretty well," Burkly said.

CRT Capital senior Treasury strategist Ian Lyngen said the bond market could react negatively if the retail sales number is better-than-expected. "A lot of the slower economy story is being priced in, so that leaves the market vulnerable to even a marginally better retail sales print or data surprise," he said.

Bond investors are also watching the 1 p.m. auction of $13 billion 30-year bonds. The auction of $21 billion of 10-year notes Tuesday delivered mixed results. Demand was softer than usual and prices fell.

The 10-year was yielding 1.99 percent, from 1.95 percent Monday.

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