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Traders Watch for Curve Balls From Europe

More curve balls from Europe are likely to be hurled at Thursday's markets, as traders also look to U.S. economic data for signs of continued improvement.

NYSE Trader
Photo: Oliver Quillia for CNBC.com
NYSE Trader

October chain stores sales are one place traders are watching for upside surprise, even as bad weather on the east coast may have disrupted some Halloween-related activity.

"October is really focused on Halloween. Halloween is considered a recession resistant holiday," said Marc Pado, Cantor Fitzgerald market strategist. "I'm hoping for a good number on the retail side." Thomson Reuters projects the companies in its retail index will report a monthly sales gain of 4.5 percent, with the biggest winner discount stores, up 6.7 percent, and drug stores, up 4.9 percent. The worst performer is expected to be apparel retailers, up just 1 percent.

There are also weekly jobless claims, expected at 400,000 when they are reported at 8:30 a.m., at the same time as productivity and costs. ISM services data and September factory orders are released at 10 a.m. Some major companies report earnings, including Duke Energy, Beam, CVS Caremark, NYSE Euronext, Eastman Kodak, Kellogg, MGM Resorts, Apache, Agrium, Cigna, and PG&E. After the bell earnings are expected from AIG, CBS, LinkedIn, Sunoco, and Starbucks.

Symbol
Price
 
Change
%Change
SAMIX
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CBS
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CI
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CVS
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DUK
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EKDKQ
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K
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LINKEDIN
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MGM
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NYX
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PCG
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SBUX
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SUN
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European leaders, meanwhile, are meeting in Cannes, as the G20 gathers. German Chancellor Angela Merkel, and French President Nicolas Sarkozy meet with President Barack Obama on the European sovereign crisis.

The European Central Bank also meets ahead of the U.S. market open. The meeting is the first to be conducted by new ECB President Mario Draghi, and traders are watching to see if the ECB will remain committed to buying European sovereign debt. It is not expected to move on cutting interest rates, but it may take a more dovish stance suggesting a cut before year end. Draghi holds a briefing at 9:30 a.m. ET.

European leaders were meeting Wednesday with Greek Prime Minister George Papandreou, who shocked his counterparts earlier in the week by vowing to hold the conditions of the Greek bailout to a public referendum. By late in the day Wednesday, several news wires were reporting that Greece's sixth tranche of aid would be held back until the referendum was passed in December. The Greek leader faces a confidence vote by his parliament Friday.

"I think one catalyst to turning the market around was there wasn't a complete discord," said Pado, of the headlines surrounding the meeting. It still appears European leaders head to the G20 with their bailout plan intact.

Stocks soared Wednesday, even as new headlines from Europe occasionally dampened sentiment. The Dow was up 1.5 percent at 11,836, and the S&P 500 was up 1.6 percent at 1,237, both indexes off the day's highs. Stocks moved higher on expectations the Fed might be dovish, promising or even delivering some sort of medicinal policy effort. Fed Chairman Ben Bernanke delivered when he held the door open to more quantitative easing, this time aimed at the mortgage market.

The Fed did not change its policy stance, but it did keep an open posture toward future easing as it downgraded its outlook on the economy. The Fed now expects the economy to grow by 2.5 percent to 2.9 percent next year, down from 3.3 percent to 3.7 percent. It also expects the unemployment rate, now 9.1 percent, to go no lower than 8.5 percent to 8.7 percent by the end of 2012, up from the 7.8 percent to 8.2 percent prior forecast. It also expects to see the unemployment rate at 6.8 percent to 7.7 percent to the end of 2014.

Mesirow Financial economist Diane Swonk said what the lengthened weak employment picture may mean the Fed will be on hold for another year, into 2014. "It's very important that they moved out a full year, and their forecast is still on the high side in terms of growth versus the consensus," she said.

Fed Chairman Ben Bernanke, during his afternoon press briefing, said buying mortgages is something the Fed would consider, signaling to markets that another round of quantitative easing could be in the offing.

"I think he under girded one more time the Fed's willing to do what is necessary," said BlackRock vice chairman Bob Doll. ".. basically saying the economy in the years to come as they see it is not living up to what they think is appropriate. I think what he saying is if we need to do more, we will. Equities will like that."

Follow Patti Domm on Twitter: @pattidomm

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