March car sales could provide a pleasant surprise Thursday for a market that's all geared up about Friday's jobs report.
Oliver Quilla for CNBC.com
"We're looking for a 12.5 million rate which is a considerable improvement from the pace last month," said Michelle Meyer, U.S. economist at Barclay's Capital. The February seasonally adjusted annual rate was 10.4 million units.
"The incentives were really favorable. I think it's incentives this month which are causing a big pop in sales. We're not going to see 20 percent monthly gains going forward, but I do think we're going to be seeing improvement," said Meyer.
Economists say Toyota alone is driving a big part of the sales gain. A Toyota executive said March sales are up 40 percent from year ago levels, according to an AP report. That comes after a 9 percent decline in February, while the industry as a whole gained 13 percent. Toyota is using incentives on recalled models and financing deals to draw buyers back to its showrooms, after a major recall and widely publicized questions about its cars' safety.
"We have 12 million," said Michael Feroli, J.P. Morgan economist. While Toyota is providing a big boost, Feroli expects to see sales continue to pick up though not at the 12 million SAAR rate in the near future.
"It's a sign that consumers are feeling more comfortable about the future and employment prospects. It's definitely good to get car sales up," he said.
Thursday is also the day that the U.S. Environmental Protection Agency and Transportation Department unveil new fuel economy rules, expected to be phased in starting in 2012. The new standards would raise fuel economy to a fleet average of 35.5 miles per gallon for 2016 models, a 42 percent improvement over the current 24 mpg.
Quarter End
Stocks gained nearly 5 percent for the first quarter, but closed out the final day on a sour note Wednesday, with the Dow down 50 at 10856, and the S&P off 3 at 1169.
The dollar gained nearly 6 percent against the euro in the first quarter. It was down Wednesday, finishing the day at $1.3509 per euro. The dollar has gained 0.4 percent against the yen this quarter. Oil gained 5.5 percent for the quarter, to $83.76 per barrel, its highest level since Oct. 9, 2008.
Credit markets were also humming in Q1. It was a record quarter for junk bond issuance, at $61.48 billion. Investment grade issuance totaled more than $208.6 billion, its best first quarter ever and best level since second quarter, 2008.
The end of the first quarter also marked the end of one aspect of the Fed's quantitative easing program -- its purchases of mortgages. Kevin Ferry of Cronus Futures said the Fed is not barred from purchasing assets in the future, but it is now likely to begin unwinding some of the assets it took onto its balance sheet during the peak of the financial crisis.
Ferry also said he thinks the Fed should start to push rates higher, sooner rather than later. "If the Fed would nudge it (Fed funds rate) near 1 percent, the curve would actually flatten," he said.
"Bond yields are telling us that the market rate and supply are creating an equilibrium interest rate that's higher than here," said Ferry. He said the 10-year could cross the psychological 4 percent level in the near future.
The 10-year Treasury Thursday gained slightly, lowering its yield to 3.837 percent. Traders have been watching Treasury rates edge higher, and they see the possibility of a dramatic move if the government employment report carries any big surprise when it is released Friday morning.
What Else to Watch
A disappointing report from ADP, followed by weaker than expected Chicago Purchasing managers data, contributed to the stock market decline Wednesday. The ADP report showed a decline of 23,000 jobs, while economists had expected to see a gain of 40,000.
Barclay's expects to see job growth of 250,000 when Friday's much anticipated March employment report is released. "I would say there's risk to the downside. Today's number got us a little bit worried. Obviously ADP is not counting census. The census could account for 125,000 jobs," said Meyer. She also expects a weather-related bounce back to add another 75,000 jobs. The underlying trend gain, therefore, would be 73,000.
Feroli expects the March employment report to show an increase in non farm payrolls of 150,000. Many economists expect the government's temporary hiring of census workers to peak in May, and then turn negative in June, when workers are let go.
Weekly jobless claims are expected at 8:30 a.m. Thursday, and durable goods for March are released at 10 a.m., as is construction spending. Feroli expects weekly claims of 435,000.
RIM Shot
Research in Motion should be a big focus Thursday morning after its stock tumbled as much as 7 percent after hours. RIM profit rose 37 percent in the fourth quarter, but revenue was below expectations. RIM disappoints Wall Street, just as its high flying rival Apple is set to start selling its iPad tablet Saturday.
Citigroup's life insurance unit, Primerica will begin to trade on its own Thursday, after issuing 21.36 million shares of stock for $15 each. Primerica priced the offering above the expected $12 to $14 range.
There could also be more positive tail winds for energy companies, among the best performers Wednesday in an other wise soft market. Companies like Transocean and Rowan and Noble Energy all moved higher as President Obama announced that east coast waters from Delaware to Florida and areas north of Alaska would be open to off shore drilling.
Daniel Yergin, chairman of IHS CERA, said it's not clear what will be found under the east coast ocean floor. Exploration in the 1970s off of New Jersey and elsewhere was shut down before it was able to discover much. "There was significant hydrocarbon indicators in the 1970s, more gas than oil at the time. But then everything was shut down," Yergin wrote in a note.
"The technology for exploration and production has advanced by orders of magnitude in the decades since. The first step will be to determine what is likely there, and that itself will take time. One big question is whether something really big lies below the sub salt, as in off-shore Brazil. The technology today can answer that question, which was not the case even a decade ago," he wrote.
Yergin also pointed out that the move by the Obama Administration was part of an effort to move forward on a comprehensive energy/climate plan. "This is also part of an overall bargain, building a Congressional coalition to address climate and energy together," he wrote.
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