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Friday Look Ahead: Markets Watching Greece, Obama Housing Plan, Rates

Market focus has spun back to Greece and EU politics, and developments there could be a driver for U.S. markets Friday.

A trader at the New York Stock Exchange.
Photo: Oliver Quillia for CNBC.com
A trader at the New York Stock Exchange.

"There's a lot of posturing over there and we're reacting to it," said Tim Smalls of Execution LLC.

Traders will also be interested in the Obama Administration's new housing bailout plan, expected to be announced at 10 a.m. The program is expected to be paid for with money from the $700 billion TARP program and is aimed at underwater homeowners and the unemployed. The FHA will play a role in helping borrowers refinance to more affordable loans, and President Obama is expected to encourage lenders to forgive mortgage principal to underwater homeowners.

Friday's data includes a final look at fourth quarter GDP at 8:30 a.m. and consumer sentiment, at 10 a.m.

The Dow scored triple digit gains Thursday, before headlines out of Europe took sent the euro to a new 11-month low, drove the dollar higher and knocked stocks off their highs. The stock market ended up finishing mixed, with the Dow up just 5 at 10,841, and the S&P 500 down 2 points to 1159.

Euro zone countries agreed to a joint European-IMF plan that would act as a backstop for Greece, by giving it coordinated bilateral loans if needed. Greek Prime Minister George Papandreou called the plan satisfactory and Greece's finance minister said the plan removed risk of default for his country. The EU is likely to have more to say on the situation ahead of the Wall Street open.

European Central Bank President Jean-Claude Trichet late Thursday said the ECB's independence is not impacted by the EU-IMF plan and that it preserves ECB responsibility for the euro. He also said it was restore confidence to Greece. Earlier remarks from Trichet rattled markets midafternoon New York time, as it appeared he was against a French and German plan that included the IMF. He denied that he opposed the IMF involvement.

Higher Rates Ahead

Treasurys were once more under pressure Thursday and rates continued to creep higher. Traders again were disappointed with demand at the Treasury's 7-year auction after the weak 5-year auction Wednesday.

"Today we had a little less panic. We saw spreads stabilize. That was a helper. At the same time, we had 10-year yields at the levels of the end of last year," said William O'Donnell, head of Treasury strategy at RBS.

"..The whole Greece situation, I like to think of it as akin to turning on a light in a cockroach filled kitchen... The world's awash into much debt and there's no way to fund it," said O'Donnell.

The yield on the 10-year touched 3.9 but finished at 3.899, its highest level since June. He said there was significant technical damage done during the major move Wednesday and 10-year rates could soon be at 4 percent.

"My work suggests that we're going to definitely take a look at 4.08 with a potential of going to 4.30," he said. O'Donnell said the time frame could be the next four to six weeks.

Stocks Take Warning

Scott Redler, who follows the market's near term moves from a technical perspective, said stocks could be setting up for another pull back after it recent more than 5 percent run. "Today we had what we call a shooting star outside day, which typically leads to some type of correction. What the correction is going to be we could judge along the way," he said.

"Today technically was an important day. It was a day to watch, a day to take notice. The indices all pushed to new highs and closed on their lows, which is a key indicator to take profits off the table. It was extreme in the financials, and some tech stocks did the same thing. It was orchestrated and it all happened together ,which doesn't happen often either," he said.

Some stocks that reversed with the market after Thursday's burst higher were J.P. Morgan , Goldman Sachs and Apple .

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