Europe's debt woes threaten to sour markets again Thursday.
As this week progresses, Europe is increasingly serving as a counter weight to a growing stream of better U.S. economic news. It's no coincidence that European auctions of French and Spanish bonds top the list of what traders are watching Thursday, after a week where yields on French, Italian, Spanish and other European sovereign debt continued to rise.
The important data Thursday is weekly jobless claims at 8:30 a.m. EST, and the Philadelphia Fed survey at 10 a.m. Housing starts are also reported at 8:30 a.m. The Treasury also sells $11 billion in 10-year TIPS Thursday. Wednesday's data was all better than expected. Consumer prices fellfor the first time in four months. Industrial production was up 0.7 percent, its largest gain since July, and the National Association of Home Builders sentiment rose to its highest level in 18 months.
In U.S. markets, the benchmark Treasury yield has been hugging both sides of 2 percent, fluctuating between a safe haven trade and the reaction to improved economic reports. Traders were monitoring swap spreads Wednesday, as the 2-year swap spread tested 50 basis points, a level last seen in 2010. The U.S. 2-year swap spread is the difference between the 2-year swap rate and 2-year Treasury yield, and it's viewed as a measure of credit risk. The spread widened by 3.25 bps Wednesday.