Stock Market and Investing: Markets Back to Basics, but Watching Egypt - CNBC

With Egypt in the background, financial markets are turning their attention to Friday's jobs report and other U.S. economic reports this week.

ADP's private sector payroll number is reported Wednesday at 8:15 a.m. and is considered a preview of sorts for the jobs report, despite its spotty track record. The government's employment report for January, released Friday, is expected to show an increase of 140,000 non-farm payrolls.

Stocks sprang higher Tuesday, with the Dow closing above 12,000 for the first time since June, 2008. The Dow jumped 1.3 percent to 12,040, and the S&P 500 vaulted above the key 1300 level, rising 1.7 percent to 1308, its highest close since June, 2008 and just below a key technical area. Nasdaq was up 1.9 percent at 2751.

A catalyst was the super strong January ISM manufacturing data, which surpassed forecasts at 60.8, the fastest rate since May 2004. The report helped drive bond prices lower, lifting the yield on the 10-year to 3.435 percent, its highest yield since Jan. 20. The ISM non manufacturing survey is reported Thursday.

Traders also said the situation in Egypt turned less tense Tuesday, as anti-government demonstrators marched peacefully, and it was perceived there would be a resolution. President Hosni Mubarak, after the Wall Street close, said he would not stand for re-election in September and would work toward a smooth transition. But the opposing Muslim Brotherhood said Mubarak's statement satisfied no one, and the move was seen as unlikely to end protests.

"You had decent economic indicators. You got some favorable earnings, and incredibly they were moving Exxon, the most capitalized stock in the nation" in a big way, said Art Cashin, director of floor operations at UBS.Exxon climbed four percent Tuesday.

"Everybody seems to believe it's going to be a quiet transition in Egypt, so you're back from the brink," said Cashin, before the market close. Stock futures were slightly lower late Tuesday.

"It was also the first day of the new month. The first day of the month in 2010 basically gave you the gains for the year. New money for the new month. We'll cross our fingers and see," said Cashin.

Wednesday's earnings include Time Warner [TWX 32.31 0.86 (+2.73%) ],Nasdaq OMX, Whirlpool, Thermo Fisher Scientific, Marathon Oil, Matteland Wisconsin Energy.

Companies reporting after the bell include Yum Brands [YUM 47.42 0.66 (+1.41%) ], Visa [V 70.70 0.85 (+1.22%) ], Tesoro, Vulcan Materials, News Corp [NWS 17.09 0.51 (+3.08%) ] and Hartford Financial.

Dollar Dilemma

The dollar, meanwhile slumped Tuesday against a basket of currencies and lost a full percent against the euro. "It's generally 'risk on' now. You've got interest rates working against the dollar. It's losing what little safe haven status it had," said Win Thin, senior currency strategist with Brown Brothers Harriman. "The Egypt situation is on the back burner now...It's still a big risk, but for now, it's on the back burner." The euro was at 1.3831, its highest level against the dollar since Nov. 8.

"What's the euro got under its belt? It's got a hawkish ECB (European Central Bank)," said David Ader, chief Treasury strategist at CRT Capital. "The yield curve in Europe has been flattening, as we've been steepening. Their curve is flattening because they expect a hike."

The euro has been responding to comments made late last month by ECB President Jean Claude Trichet that there were signs of inflation in the euro zone. The Fed, meanwhile, does not see inflation but has said that the risk of deflation has lessened. The dollar temporarily firmed last week as concerns about Egypt heightened.

Ader said the bond market moved Tuesday on the strong U.S. data. "We wonder whether the stock market has it right. In the meantime, we have a big number ahead of us that we all know is going to look weaker because of the weather," he said of Friday's January employment report. He said the market will likely continue to trade on basics unless the Middle East situation escalates.

"It's a big talking point but from a market perspective, but it has been a one day wonder," he said. The Treasury market saw a flight to safety bid Friday, on worries about Egypt.

Oil Drill

Oil also lost some of the gains Tuesday that it made Friday and Monday on concerns the Egyptian turmoil could spread, or threaten shipping in Suez Canal or transmission along the SUMED pipeline. Nymex crude slipped $1.48 to $90.71 per barrel. Traders said oil is responding to a strong supply story, but that any sign of a deteriorating situation in the Middle East could drive it higher again.

Traders were also keeping an eye on Jordan, where King Abdullah II fired his government following protests and asked a former prime minister to form a new cabinet.