The incredible shrinking dollar and fired-up commodities markets will be features again on Friday when the markets have another look at fresh inflation data.
New developments in the bond insurance saga are also a factor. CNBC's Charlie Gasparino reports Friday morning that Ambac's bailout talks hit a snag though a deal is still likey. That news weighed on futures.
Separately, investor Wilbur Ross is taking a stake in bond insurer Assured Guaranty. Ross describes that as an investment opportunity, not a necessary capital infusion.
Spillover from Thursday's after-the-bell earnings reports may also be a factor. Dell slumped in late trading after it reported quarterly net fell to $679 million from $726 million the year earlier. It cautioned that customers may be pulling back on spending. AIG also fell on its earnings report. The company said it had a $7.2 billion credit derivative loss in the fourth quarter and that it lost $1.25 per share.
On Friday, traders are watching the PCE price index and PCE core price index for January, released at 8:30 am. Those numbers arrive as part of the personal spending and income report. Chicago purchasing managers' data is released at 9:45 am. Consumer sentiment is released at 10 am.
Stocks were down Thursday for the first time since last week, lower in part on comments from Fed Chairman Ben Bernanke that some small banks will fail. Stocks also fell out of the gate after data showed that new applications for jobless benefits jumped in the past week and the revision of fourth-quarter GDP growth failed to rise as expected.
Companies in the News
Take Two , which received a bid from Electronic Arts , says after the bell it was approached by another possible buyer. In the Microsoft-Yahoo saga, meanwhile, sources close to the situation tell me there are no formal talks between the two companies, contrary to a news report from Europe early Thursday. It would seem that Microsoft moves toward a proxy battle for Yahoo board seats.
One of the big corporate stories of the day Friday comes after the bell when Berkshire Hathaway reports earnings and the oracle of Omaha -- Warren Buffett -- releases his annual investment letter. That promises to be a warm-up for the three hours of Buffett advice we expect to hear when he co-hosts "Squawk Box" on Monday.
Firing up Inflation
Also hurting stocks was endless chatter about inflation as oil and other commodities rode higher. Bernanke, in his second day of testimony Thursday, stuck to the Fed's script that it is concerned about inflation but will keep cutting rates to prevent further slowing of the economy. That view, traders say, is keeping selling pressure on the dollar.
"For the first time in ten years, I am worried about inflation," said CNBC's Larry Kudlow. "Inflation is the biggest cause of recession. If you look at real retail sales and you look at real hourly wages, you'll see the spike of inflation is causing a negative in wages and a negative in sales...It cut right into wages."
Dennis Gartman, author of the Gartman letter, is in the "no inflation" camp. He told "Squawk Box" Thursday that commodities are inflating, but there is not inflation across the board.
"Until you see the Fed expanding the monetary base at a rate far greater than long-term growth of the economy, I'm not going to be a believer that inflation is rampant everywhere. What we do have is inflating commodities prices but at the same time we have deflating wages. We have a limited economy here in the United States that I think is in recession. I hear everybody talking about inflation. I think we are inflating some commodities prices," he said.
"What we do have is expanding commodities prices at the same time we have deflating wages," he said.
The Dow fell 112, or 0.9 percent to 12,582. NASDAQ was down 22 and the S&P was off 12, both declines of 0.9 percent. Needless to say, banks did poorly, losing 3.46 percent. Airlines were down more than 4 percent. The S&P financial sector was down 3 percent, the worst performer. Natural gas stocks were up 3.14 percent, gold stocks were up 2.14 percent and oil services rose 1.91 percent.
But the big movers were in other markets. Oil jumped 3 percent to a new record of $102.59 per barrel. Heating oil jumped 2.7 percent to $2.8456 per gallon. Natural gas was up 4.2 percent to $9.443 per million BTU. Gold continued its run up, rising 0.7 percent to $964.50 per troy ounce. Silver gained 2.2 percent to $19.64 per troy ounce and copper was up 0.7 percent at $3.8635 per pound.
Treasurys saw a flurry of flight to quality activity with the 10-year rising 1-3/32 points, which lowered its yield to 3.715 percent, its lowest yield since Feb. 13. The two-year also rose, pushing its yield lower to 1.876 percent, the lowest yield since April, 2004.
The dollar continues to take a thrashing. The dollar index fell to an all time low, while it fell 0.5 percent against the euro. The dollar stood at $1.512 per euro. It fell 0.9 percent against the yen.
Other commodities were also higher, but wheat slumped 7.6 percent after a wild trading day Wednesday where it moved higher then sharply lower. Traders blamed the move in wheat Wednesday on the unwinding of the positions of a rogue trader who caused a $140 million loss for M.F. Global .
Traders expect oil and other commodities to continue to ramp up Friday if the dollar continues to tumble. Kevin Ferry of Cronus Futures Management said he thinks some of the speculative trade could be close to an end as it gets toward month end tomorrow.
Ferry talked about how some hedge funds are shorting dollars right now, but buying into gold and oil. "The key point is this is not the yen carry trade," he said, referencing a popular trade where investors borrowed in cheap yen to buy assets elsewhere. "The difference here is the two commodities that are leading the world higher are only denominated in dollars."
"Wheat was the latest example of this trend. There's only one thing people should be wondering, is how do they get out," he said.
"When you leave oil and gold, they've found the rest of the commodities markets are much too small for all the money that wants into them," he said. Not helping was a report that Calpers plans to invest 16 times more in commodities than it has been investing, a contrarian signal to some that the markets are getting too hot.
Of course Friday is leap day. You can look at it in a couple of ways. Here's one -- if it's a bad day in the markets, it won't have an anniversary for four years.