U.S. economic reports should dominate early trading Thursday, unless the European debt crisis bubbles up again.
Markets Wednesday were soothed after a EUR 1.25 billion Portuguese debt auction drew good demand, but at a high cost. Spreads narrowed across the European periphery, and safe-haven German bunds and U.S. Treasurys gave up some gains as concerns about Europe's weaker issues faded. Investors are watching auctions by Spain and Italy Thursday.
The Dow jumped 83 points Wednesday to 11,755, its highest close since Aug. 11, 2008, and the S&P 500 gained 11 to 1285. Nasdaq was up 20 at 2737. Financials were the best performing S&P sector, rising 1.7 percent, followed by energy, which gained 1.2 percent. Other big winners were commodities related names and fertilizer companies, rising on a bullish government crop report.
Thursday's economic reports include weekly jobless claims, producer prices and international trade data, all released at 8:30 am. ET. The Treasury auctions $13 billion in reopened 30-year bonds at 1 p.m. Earnings season also picks up some momentum with Intel's report, after the closing bell.
CNBC Thursday brings viewers an FDIC small business forum, featuring FDIC Chair Sheila Bair and Federal Reserve Chairman Ben Bernanke. CNBC's Steve Liesman moderates a 1 p.m. ET panel discussion with Bair and Bernanke, and CNBC's John Harwood moderates a second panel of lending experts and officials called, "Confronting the Obstacles."
The European Central Bank holds a rates meeting ahead of the U.S. market open, and ECB President Jean-Claude Trichet speaks after the meeting. Investors are watching to see if he will discuss the purchase of sovereign debt by the central bank or any plans to expand the size of the European Financial Stability Facility (ESFS) bailout fund. The Bank of England also holds its rates meeting.
European Commission President Jose Manuel Barroso called this week for a summit decision in February on increasing the lending capacity of the ESFS. European finance ministers, meanwhile, meet next Monday and Tuesday, but finance ministers are not expected to finalize plans for the ESFS at those meetings.
"There is a sense in the market that something is likely to happen that will involve some burden sharing. Exactly how that transpires, whether it's expanded ESFS or common euro issuance, there's something going on there," said Robert Sinche, chief global foreign exchange strategist at RBS. "...Clearly you look at what's happening in equity markets in Europe...and you look at the bond performance. There is a sense there is something going on here that is going to bode well for some sort of ongoing sustainable solution to the crisis. We've had ebbs and flows on this in the last couple of months and we'll continue to have them."
The euro rose 1.2 percent against the dollar Wednesday, to 1.3133. Sinche said the dollar's decline against the euro is likely to be short-lived. "We still think the trend is higher, and that we're not heading toward a (sovereign) solution, nor are we heading toward a good cyclical environment in Europe so the combination suggests that instead of buying euro/dollar, we'd be looking for opportunities to sell it," he said.
Too Hot Commodities?
Commodities investors are closely watching a meeting of the Commodities Futures Trading Commission Thursday morning. The CFTC, in an effort to limit the role of big speculators in commodities markets, is expected to discuss its plan to limit the positions investors can take in energy, metals and agriculture markets.
Meanwhile, in commodities markets Wednesday, oil rose 0.8 percent to a new 2-year high of $91.86 per barrel, on concerns about U.S. crude supply.
Agricultural commodities were on a tear, after a USDA report showed a surprising drop in the U.S. corn and soybean crop. Corn jumped 4 percent, to $6.31 a bushel, and soy beans rose 4.3 percent to $14.15 a bushel. Wheat rose 2 percent. The report showed U.S. corn production fell 4 percent in 2010, to 12.4 billion bushels and that 745 million bushels will be stockpiled by August this year, down from 1 billion in August 2010.
"We moved corn prices to the next level," said Prudential Bache senior grain analyst Shawn McCambridge. "The next plateau is supported by the trader balance sheet and the need to increase acreage next year. Those remain strong and legitimate factors, and I look to them to provide strong support for prices as we move out the next months."
McCambridge said a wild card is how much of their acreage farmers will use for corn. "The thing is we need to increase soy bean acreage. We need to increase cotton acreage and prices are very attractive on those other commodities so corn needs to be competitive against those other commodities to pull farmers over to corn," he said.
He said farmers have mostly decided on their plantings for this year, and many will stick to planned crop rotations. "I feel there's roughly four to seven million acres that could probably switch just before planting," he said.
"Corn carries a higher production cost so it requires a lot more upfront money to grow a corn crop. While there's enough acreage to go around, corn has to remain competitive to make sure acreage doesn't become an issue," he said.
One thing that may curb higher prices is the ability of the economy to support them. "I still think one consideration not fully realized in these prices is the fragile economy at this time, and the rising commodity prices would result in higher food prices," he said. He added that the biggest variable for food prices is not the grain price, but energy. "Then we look over at the energy market and crude is pushing $92," he said.
Rising prices for commodities have been causing problems for the emerging world and the Fed gave a nod to the concern Wednesday domestically. In its beige book, the Fed noted that manufacturers in the Philadelphia and Kansas City Fed districts said they plan to push for price increases this year, and manufacturers in the Boston, Cleveland and San Francisco regions also said they were concerned about rising commodities.
What Else to Watch
Banks are reportedly meeting in New York Thursday to pitch the Treasury for the right to sell the government's stake in insurer AIG. The Treasury will own 92.1 percent of the company after a recapitalization.
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