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Greece Talks, Earnings Will Keep Markets on Edge

Tuesday, 7 Feb 2012 | 8:27 PM ET

The slow progress in Greece’s debt talks will hang over markets Wednesday, as investors also watch one of the last big blasts of the quarter’s earnings news.

Greek Parliament
PNC | Brand X Pictures | Getty Images
Greek Parliament

Signs that Greece and its private creditors were moving closer Tuesday sparked a rally and short-covering squeeze in the euro, which also helped drive stocks higher. On Wednesday, Greek coalition leaders are expected to meet with Greek Premier Lucas Papademos on new austerity measures.

There is no U.S. economic data, but there is a batch of earnings reports. Nissan, Sanofi, CVS Caremark, Time Warner, Sprint Nextel and Moody’s are among companies reporting ahead of the opening bell. Cisco, Groupon, News Corp, Visa and Whole Foods report after the close.

“Don’t forget, the day starts with Europe,” said Jefferies chief financial economist Ward McCarthy, referring to the potential for surprise headlines that could drive markets.

He said he is also watching San Francisco Fed President John Williams, who speaks on the Fed and the economic recovery at 10:40 a.m. EST in San Ramon, Calif. Williams is viewed as dovish, and his comments could add to speculation that the Fed will carry out another round of quantitative easing .

The Treasury Wednesday auctions $24 billion in 10-year notes at 1 p.m. EST. McCarthy said he expects the auction to do well, even as Tuesday’s 3-year auction got so-so results, with dealers taking a bigger than normal share. “If you look at the last two — in December and January — both of them stopped short and had very strong bid covers…I’ll be surprised if the 10-year note auction poses a problem.”

Euro High

The euro erased losses Tuesday on the signs of progress from Athens, before finishing the New York session nearly a percent higher at 1.326.

“I think there’s a perception that neither side is ready to make the kind of decision that would involve Greece leaving the euro and they will reach a compromise,” said Deutsche Bank’s Alan Ruskin, head of G10 currency strategy. “The market is understandably working on the basis that they will reach some sort of compromise.”

As developments in Europe helped stocks, Fed Chairman Ben Bernanke also gave risk assets a boost. In testimony before a Senate committee, he once more held out the promise that the Fed could use quantitative easing if it believes the economy or financial markets would need it.

“The one thing he said that I thought was interesting was the labor market is in worse shape than the unemployment rate would suggest, and the unemployment rate is already unacceptable in his view. I think he’s still staking his claim that the Fed still has be accommodative,” said McCarthy.

Traders had been watching to see if Bernanke would change his view or give a nod to recent improvements in economic data, including Friday’s January employment report. Bernanke did not alter his comments, and some traders said they were even more convinced of the prospects for more quantitative easing.

McCarthy is in the camp of those who expect the Fed to launch another quantitative easing program. “I don’t think it would hurt. I would view it more as an insurance policy,” he said. The Fed is expected to buy hundreds of billions of dollars of mortgage securities if it carries out another round of QE.

McCarthy said the Fed also may act again because it is fighting “political incompetence” in Washington, noting the fractious nature of Congress and its inability to agree on fiscal matters. “He’s the only guy with a compass and a rudder down there,” he said.

Stocks Rally

As the euro bounced Tuesday, stocks erased losses. The Dow finished up 33 at 12,878, and the S&P 500 edged up 2 to 1,347. The S&P 500 is now up 7.1 percent year-to-date and 22 percent from its October low.

There have only been eight years with better performances in the same year-to-date time frame, from Jan. 1 through Tuesday’s close, according to Standard and Poor’s analyst Howard Silverblatt. The market ended lower in only one of those years. That was 1934, when stocks were up 12 percent early on and finished the year down 5 percent.

All the other years had steep double digit gains, with the exception of one. That was 1987, when stocks were 16 percent higher in the early days of the year, and ended up just 2 percent.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • Sharon Epperson is CNBC's senior commodities and personal finance correspondent.

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.

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