Traders say they'll be watching the dollar as much as anything Friday.
But they are also keeping an eye on J.C. Penney's earnings report and whatever that company says about holiday sales. On Thursday, retailers - Wal-mart, Nordstromand Kohl's - all reported earnings and provided little in the way of encouragement when it came to the outlook for the holiday season. High end retailer Nordstrom, however, raised its guidance for the full year.
"Even though people are saying they still see discretionary purchases, it's still the 'need' purchases that seem to be happening," said Art Cashin, director of floor operations at UBS.
Analysts expect a low single digit percent pickup in holiday sales, compared to last year. There has been some market optimism that retailers will be able to beat those low numbers, and the S&P retail index has run up to a 52-week high. Both Kohl's and Wal-mart had better than expected third quarter results but were conservative in their comments, with both stressing discounting.
Stocks Thursday sold off as the dollar firmed. Cashin said oil was also a factor. NYMEX crude slumped 3 percent to $76.94 per barrel on the stronger dollar and after the EIA weekly inventory report showed greater supply than expected in oil and refined product inventories. Gold also pulled back from its highs.
The Dow slipped 93, or 0.9 percent to 10,197, while the S&P 500 fell 11, or 1 percent to 1,087.
"They're having a little trouble at 1,100 in the S and Ps," Cashin said. Traders said the 1080 level on the S&P will be an important level for the market to hold.
Friday's data includes international trade and import prices, both at 8:30 a.m., and consumer sentiment at 9:55 a.m. "Consumer sentiment will be important because they're going to have to figure out whether or not to put Santa Claus on a milk carton," said Cashin.
One bright spot Friday will be Disney, which saw its stock pop after reporting better-than-expected earnings after the bell Thursday. Disney earnings were $0.46 per share, compared to the $0.43 expected, but sales were $9.87 billion, an increase from the $9.45 billion last year.
Other Friday reports include Abercrombie and Fitch and Agilent.
Before the U.S. open, overseas markets will be anticipating the latest read on German and Eurozone GDP. "Third quarter GDP might be better than expected," if you listen to Bundesbank officials, said Brian Dolan of Forex.com.
"After the Monday rally, we had a stall in risk (trade), and today seems we have a bit of a give back," said Dolan.
The dollar strengthened against the euro and yen. In late afternoon, the euro was at $1.4847, down from Wednesday's $1.4976. The dollar index, which tracks a basket of currencies, was higher at 75.69.
"Keep your seat belt fastened. It's Friday the 13th. We've had a bit of a failure in risk but it could be bounding back," Dolan said. The so-called "risk trade" is a tightly linked trade where the dollar moves lower but risk assets, like stocks and commodities move higher. That trade is dependent on the idea of a global economic recovery.
"We really just ran out of gas at the 1.50 level in the euro is a pretty strong cement ceiling. We need fresh data that gives the bulls reason to buy," said Boris Schlossberg of GFT Forex.
"Ultimately the trend to a lower dollar remains in tact. This is just a corrective pull back." said Schlossberg.
"The big worry globally in all of the capital markets is can demand grow. The only way you get the next phase of the risk trade is if you actually get demand growing," said Schlossberg. For that reason, traders are focused on the U.S. retail sales data Monday. "It now becomes a tail wagging the dog story because everyone wants to blame the decline in one asset for the move in another asset."
Treasury Secretary Tim Geithner, on his trip to Asia for the APEC meeting, has been talking up the need for a strong dollar but the currency market does not appear to be giving him much credit. President Barack Obama is also attending the meeting and will visit Beijing. Finance ministers at their meeting in Singapore issued an endorsement for more exchange rate flexibility that would be "market-oriented."
Talk in the currency market focused on the idea that China may be ready to let the yuan appreciate. Its currency has been pegged to the dollar, and U.S. and other officials have complained that China has an unfair advantage when it comes to exports because of that.
"People are beginning to note that there's pressure on the Chinese. I don't think they'll do anything but they may throw a bump into the market by slowly appreciating the yuan. They don't want to do anything to threaten their export growth," said Schlossberg.
He said other Asian exporters have been hurt by China's currency peg. "Whatever they do is going to be much for show. The pressure is coming from their own back yard. Because they pegged themselves to the dollar, they're getting cheaper," he said.
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