After oil's plunge, traders watching whether Draghi will rock the boat

Don't believe ECB's 'fake news': David Tepper

Stock trading Thursday will likely hinge on oil prices and headlines from Europe, as traders await Friday's key report on jobs.

After Wednesday's blow-out private payrolls figures and a plunge in oil prices, U.S. stocks closed mixed. The Nasdaq composite eked out a gain of 3.6 points, while the Dow lost 69 points and the S&P 500 fell 5.4 points to close at 2,362.98 as energy stocks dragged. The Energy Select Sector SPDR ETF (XLE) fell 2.5 percent Wednesday to below its 200-day moving average.

That's "not healthy," Scott Redler, chief strategic officer at T3 Trading, said in an email. "If it stays below the 200-day for multiple sessions it shows true weakness."

In a steep intraday drop, U.S. crude oil futures plunged 5.4 percent to their lowest close since Dec. 7 after weekly inventory data showed a bigger-than-expected build. The slide took oil prices past a technical support level of $51.22 a barrel to a settle of $50.28, and now all eyes are on the psychologically key $50 level.

"We won't have a newer input" on crude oil data Thursday, said Art Hogan, chief market strategist at Wunderlich Securities. "But what's startling about this is technically we've broken support."

"You've got a lot of movement in the energy [stocks]. They have a lot to give back," he said.

ELF beats Street expectations

The breakdown in oil prices, a Federal Reserve intent on raising rates, potential government policy announcements, Friday's jobs report and coming elections in Europe put Thursday's session in the middle of major market events.

Against those uncertainties, European Central Bank President Mario Draghi will try to "not rock the boat" when he speaks Thursday, said Athanasios Vamvakidis, head of G10 FX strategy in Europe for Bank of America Merrill Lynch.

The ECB is due to release its decision on monetary policy Thursday at 7:45 a.m., ET, followed by a press conference at 8:30 a.m. Traders will watch for any signals from Draghi on when the central bank may further trim its asset purchase program, or taper.

"The Q&A might be more interesting given headline inflation is now at 2 percent and euro zone data is very strong," Vamvakidis said. He did note that core inflation in the euro zone is still below 1 percent, which could give Draghi reason to maintain current accommodation in monetary policy.

The central bank is scheduled to cut its monthly purchases from 80 billion euros to 60 billion euros in April, and keep that pace until at least December.

"I think at least the currency markets are going to be watching this meeting very closely," said Chris Konstantinos, director of international portfolio management at RiverFront Investment. "A definitive change in tone from Draghi would be very unexpected."

Traders said Fed and the dollar will likely be the bigger drivers in the euro-dollar, however. The U.S. dollar index hit its highest in nearly a week on Wednesday, while the was last near $1.054.

All eyes on the Fed

"The Federal Reserve is a swing central bank right now," said Karl Schamotta, director of FX research and strategy at Cambridge Global Payments. "It is the one that is prone to change. [The] key question is whether we have alternate interest rate hikes scheduled throughout the year."

The Fed seems set to raise interest rates at its meeting next week, barring any negative surprise from Friday's employment report. Goldman Sachs and UBS Wealth Management raised their forecasts on the headline nonfarm payrolls figure well above 200,000 on Wednesday after the ADP Employment report surprised with a 298,000 print.

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The hit a fresh seven-year high after the ADP report and was last trading slightly below that level, near 1.35 percent. The 10-year yield and 30-year yield hit their highest since December.

The Treasury is scheduled Thursday to auction $12 billion in 30-year Treasury bonds.

Economic reports due for release Thursday include the Challenger, Gray & Christmas job cut report, weekly jobless claims, the Fed balance sheet and import and export prices. Natural gas inventories are also scheduled for release.

Signet Jewelers, Staples and Party City are scheduled to report earnings ahead of the open Thursday. Ulta Beauty, El Pollo Loco, Finisar and Verifone are set to post results after the close.

Bull market birthday

Thursday also marks the eighth anniversary of the bull market. As of Tuesday's close, the S&P 500 has gained 250 percent since March 9, 2009, including cumulative dividends.

"For me the thing is this bull market is a bit of a mystery in that it's the second longest bull market in history," said Mike Arone, chief investment strategist for the U.S. intermediary business.

Given that the last time stocks fell more than 5 percent was last June, real interest rates remain low, and credit spreads remain tight, he said, "the bull market could continue for a little while longer."

Source: Ritholtz Wealth Management