Market Insider

Look Ahead: Wall Street Hopes for Progress on Greece

At the very least, markets are betting on progress Thursday in the European Union's efforts to help Greece through its fiscal crisis.

Traders work on the floor of the New York Stock Exchange.

"Investors are anticipating a solution is being assembled right now. They assume spokespersons for Germany and France would not have suggested s solution was possible unless some progress had already been made. If there is not an announcement, we'll see some retracement," said Zane Brown, fixed income strategist at Lord Abbett.

Stocks were slightly lower Wednesday as uncertainty about Greece and a powerful East Coast blizzard combined to keep trading relatively quiet. The Dow did move to its lows early in the day on comments from Fed Chairman Ben Bernanke, who spelled out how the Fed will return to a more normal interest rate cycle and back away from its rescue programs.

Washington will be closed for a fourth day Thursday, after a second heavy snow fall complicated earlier cleanup efforts. January's retail sales data, expected Thursday morning, was delayed for release until Friday. However, weekly jobless data will be issued as expected at 8:30 a.m.

The European Union, however, will be the talk of markets. Germany and France were reportedly crafting a plan to help Greece out of its budget woes.  The Brussels summit begins at 3:30 a.m. New York time, and a press briefing is expected at 10:45 a.m. ECB President Jean-Claude Trichet attends the meeting of political leaders.


There's lots of chatter about  how much money is being saved or lost by the government's shutdown this week. But even so, there is the potential for real economic impact from the series of snow storms this month, and it could show up in February's economic reports, said Deutsche Bank chief U.S. economist Joseph LaVorgna.

LaVorgna said it's possible there could be a decline of about 1 percent in retail sales this month just from the storm. One area though that could show a pickup would be food and beverage sales, as consumers horded food ahead of the snow fall.

The February jobs report could also be impacted. LaVorgna said he studied past periods where significant numbers of workers reported that they stayed out of work due to weather. He found during those periods that there was also a corresponding drop in the monthly non-farm payrolls.

He analyzed the data around the last three largest snow storms - February, 1994, January, 1996,  and February, 2007. His forecast for February's non farm payrolls is now positive job growth of about 25,000 to 35,000. "Absent the snow, I would have said plus 125,000," he said.  

LaVorgna said the weekly jobless claims could also be distorted and come in lower because snow bound unemployed workers may not go out to file claims. He expects jobless claims to total 465,000 when they are reported Thursday.

First-quarter GDP could also be negatively impacted by the string of storms, but it's too soon to gauge the impact, he said.

"The irony of it is in some ways, the snow hurts the data but it may actually give the market some patience in waiting for the turn. I'm convinced we're going to get an economic turn, a pretty sizeable economic turn."

Fed Ahead

Bernanke's exit plan, on a normal day, would have received much more attention had the hearing not been postponed.  The Fed chairman, in a statement, detailed how the rate paid on excess reserves may be the replacement for the Fed Funds rate as its main tool to impact interest rates. He also said the Fed may "before long" increase the difference between the discount rate and the Fed funds rate. That comment sent stocks lower.

Brown said the interest on reserves could prove to be a more powerful tool for the Fed. "Fed funds increase or decrease the cost of bank reserves. If you address bank reserves directly, and you're able to.. now you're talking much more credit control. By making it much more attractive, those excess reserves never get lent out. Fed funds, on the other hand, just increases the cost of money where you're much more addressing credit creation with interest rates on reserves," said Brown.

The Treasury Thursday conducts a $16 billion 30-year auction. Treasurys were under pressure Wednesday, and the rates on the 10-year rose as the Treasury carried out a less than stellar 10-year note auction.

David Ader of CRT Capital said part of the move up in rates came from the market taking its cue from the tightening of spreads on Greek sovereign debt.    
"The reasons we're paying so much attention to Greece is there's not that much new and compelling here to make you say, "I've got to be bullish or bearish." We've still got these bar bells, a bipolar view of the financial markets. There's some views of a recovery, and then some view that the recovery is so weak we'll have a double dip," said Ader.

He said until that is resolved the 10-year should stay in its 3 to 4 percent range on yiel

Getting Technical

Traders have been debating whether the market remains in a correction mode, and how much lower it might go before resuming the rally. The triple worries of China pulling back on bank lending; political risk from both Congressional efforts at reform and the Administration's policies, as well as the European sovereign debt fears have collectively stalled the stock market's rally.

The Dow fell 20 to 10038 Wednesday, and the S&P 500 was down 2 at 1068.

"The question is did we have enough of a correction? Is 9 percent for a pullback enough?" said Scott Redler, who follows the market's short term technicals at Redler said if the S&P 500 closes below 1060 to 1065, it could retest the 1044 level, its intraday low last Friday.

He said the S&P 500 appears to be forming a "wedge," a technical pattern of indecision which sometimes precedes a powerful move in either direction.

"Sometimes when you don't know what the next move is going to be, you see this back and forth activity, where volatility is constricted," he said.

"Either the bears are going to win, and we're going to break 1044. Or, the bulls are going to win, and we'll snap back up to 1085/1090," Redler said. Two stocks to watch, he said are Apple and Goldman Sachs, market leaders in key sectors. On the downside, Apple would need to hold 190 and Goldman would have to hold the 150 area.

"If those supports go away, we would be resolved on the downside," he said.

There are some major earnings Thursday including PepsiCo, Philip Morris, Acatel-Lucent, AutoNation, Marriott, and Viacom.

Companies Reporting Thursday

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