The weekly jobless claims report should help swing the focus back to the U.S. economic recovery at least temporarily Thursday, after the Fed affirmed low rates are here to stay for the time being.
There are also dozens of major earnings reports including oil giant Exxon Mobil, and some of the heavy weight consumer companies, including Procter and Gamble and Colgate Palmolive. Financial regulatory reform appears to be again moving toward debate in the Senate.
Worries about Greece and sovereign credit contagion were temporarily pushed to the back burner Wednesday, as the Fed released its statement, declaring once more that it will keep its low rate policy in place for an "extended period." Stock prices rose, and the safe haven trade into Treasurys abated.
As IMF director Dominque Strauss-Kahn and ECB officials met in Germany Wednesday, progress appeared to be made in bringing Germany closer to action on the Greek debt package. German finance minister Wolfgang Schauble said the German parliament would be able to vote on a draft bill Monday on Germany's participation in the bailout. Greece's prime minister, meanwhile, said his country agreed to cut its deficit by 4 percent and that it was ready for change.
European Union President Herman Van Rompuy said he plans to call a summit for EU leaders to vote on the package for May 10, the day after a German regional election. Opposition to a Greek bailout has been running high in Germany, and has been blamed in part for the delay in implementing the rescue package. Strauss-Kahn Wednesday said the total cost of the bailout, split between the EU and IMF, may now be between 100 and 120 billion euros over three years.
"At the end of the day, the market is going to push Germany, I believe," said Greg Peters, head of credit research at Morgan Stanley.
"You might not have the political will to do it, but ultimately it affects the banking system and the banking system is still quite fragile. Clearly that's the challenge," Peters said.
"We think all this happening in Europe is creating bullishness on the U.S., and the U.S. cyclical story is in tact for now, and that's how you want to play this," he said. He added though he thought it would have had a bigger impact on overall risk taking investments than it has. "So, the cyclical forces have over taken everything else," he said.
The Dow ended Wednesday up 53 at 11,045, and the S&P 500 was up 7 at 1191. The euro stabilized after a big slide Tuesday, finishing the day 0.2 percent higher against the dollar, at $1.3201. Treasurys slipped, and the yield on the 10-year rose to 3.778 percent. Gold continued to move higher though on the concerns about Europe.
On Thursday, economists are expecting weekly jobless claims of about 445,000, showing a slight improvement from the 456,000 the week earlier. "We're looking for the trend toward declining claims to reassert itself," said J.P. Morgan economist Michael Feroli.
The Fed Wednesday modestly upgraded its statement on the economy. It said the labor market is beginning to improve, as opposed to the "stabilizing" in its last statement. It also said consumer spending demand "picked up," instead of expanding at a moderate rate and that housing starts "edged up," as opposed to being flat.
Some traders and analysts said the European debt situation may now give the Fed another reason to hold onto its low rate policy.
"It seems like you're getting a little bit of worry seeping back into the system, and there's some concern now about European banks, broadly speaking, but the financial system is pretty interlinked globally so that, I think it is going to enter the Fed's thinking. I don't think it was a big element driving today's statement," Feroli said.
As for the U.S. economy, Feroli sees continuing improvement, aside from the concerns about Europe. "We're feeling like things are clicking pretty well. I think we could actually see a pickup in GDP growth in the second quarter, compared to the first. We have it at 4 percent. We feel there's acceleration," he said. As for first quarter GDP, due on Friday, Feroli expects a 3 percent growth figure.
The risks from Europe's debt crisis are as yet unclear. Spain's debt was downgraded by Standard and Poor's Wednesday.
"It's not too hard to draw up a scenario. Maybe we don't have tons of exposure, but at the margins it wouldn't be good. You don't have a lot of exposure to Greece, but then you've got to think about the interlinkages between U.S. and European financial institutions, and they have exposure," he said.
"There's always something to worry about. There's certainly optimistic outcomes. But I think without Greece, we would be feeling better," he said.
Earnings are also expected from AstraZeneca, ConocoPhillips, Bristol-Myers Squibb, Borg Warner, CME Group, International Paper, Kellogg, Occidental Petroleum, Viacom and Weyerhaeuser. Hartford Financial, MetLife and KLA-Tecor report after the bell.
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