Wild Card Friday

The S&P 500 has been trading in a narrow, 10 point range (1116-1125) since Tuesday. For the most part, the stock market has treated both good and bad economic reports with the same indifference. But Friday promises to end the week with a crescendo: US non-farm payroll report. The results of the much anticipated report and its subsequent interpretation are anyone's guess. Wednesday ADP report showed a loss of about 20,000 jobs in February, definitely not a good number but in line with a declining trend of job cuts. The NFP, which is calculated differently than ADP's, is expected to be adversely impacted by February's snow storms.

The S&P's daily chart looks bullish and a retest of January's 1150 high seems closer than ever. Still, signs of risk aversion are apparent, most notably in a stronger yen.

There are 3 possible outcomes for tomorrow's NFP report:
1. Inline with expectations  -should be positive for the stock market but potentially damaging to the US dollar and yen.
2. Better than expected - should, obviously, be positive for the stock market and negative for the yen. A slightly better NFP number could prove negative for the dollar while a much better than expected could lift the dollar higher (recall Dec 4 2008 NFP report).
3. Worse than expected - a slightly worse than expected report is somewhat anticipated and is already factored in. So if the number is only slightly worst than expected, the market might breath a sigh of relief and charge forward. In this case both the yen and the US dollar might pair gains. Having said that, a MUCH worse than expected will surely be negative for the stock market and support stronger US dollar and yen.

Another Friday wild card, with a potential for an upside surprise, is the Papandreou/Merkel meeting. The German Chancellor was quick to point out the meeting was largely symbolic in nature and not intended to discuss a possible bailout for Greece. Still, we should expected them to come out with some reassuring statements regarding the strength of the EU and its resolve to stick together in tough times.

In short, it's almost impossible to predict what will happen tomorrow. One thing for sure, it will not be boring!