Market Insider

Snow, Toyota May Have Dented February Car Sales  

Toyota's safety problems and a series of major snow storms probably put a dent in auto sales last month.

February's car sales will be reported Tuesday and are expected to come in better than last year's depressed level. But economists expect to see a seasonally adjusted annual sales rate of 10.3 million, down from 10.8 million in January. How much of the lag will be from Toyota and how much is from the east coast snow storms has yet to be seen.

Some Toyota rivals probably benefited from the auto giant's recalls and the negative publicity surrounding its acceleration problems. February is the first full month of sales since Toyota temporarily suspended sales to fix its pedal problems.

"We won't know until we see the numbers. Weather is a funky thing," said Deutsche Bank chief U.S.economist Joseph LaVorgna.

LaVorgna said weather in fact, makes Friday's government employment report for February a less meaningful statistic than normal because of the series of snow storms. He said he expects a decline of 75,000 non farm payrolls, and some economists say the impact could be 100,000 jobs or more.

For that reason, the weekly jobless claims number Thursday is the one to watch. Last week's jobless claims came in at a surprisingly high 496,000, but this week's report is from the week before last when snow was less of a factor.

Whither Stocks

Stocks were higher Monday, as a wave of global mergers drew buyers into stocks and concerns about Greece faded. Over the weekend,  EU countries appeared more willing to take concerted action to help Greece, but on Monday the EU Monetary Affairs Commissioner Olli Rehn said Greece needs to work harder to fix its financial problems.

The Dow was up 78 at 10,403, and is now just under 25 percent from its 2009 close. The S&P 500 was 11 higher at 1115, while the Nasdaq was up 35 at 2273. Both those indexes are now up fractionally since the beginning of the year. The best performing sectors Monday were consumer discretionary, up 1.6 percent; materials up 1.6 percent and technology, up 1.5 percent.

Selling Sterling by the Pound

Sterling took a thrashing Monday, after a weekend poll showed that Britain's opposition Conservative Party leading by just 2 percent over Prime Minister Gordon Brown's Labour Party. A second ComRes poll in the Independent Monday night showed the Conservative Party's lead at 5 percent.

In New York trading Monday, the dollar gained 1.74 percent against the pound, which fell to $1.4989. The euro fell 0.3 percent to $1.3560.

"It underscores peoples' anxiety. If you have an uncertain outcome with no leadership and no mandate, who's running the store?" said George Magnus, senior economic adviser at UBS Investment Bank in London.

Magnus said in a report last week that sterling could lose substantial ground if the election goes badly. "I think it will be choppy. I don't think there's going to be a major jolt. I don't think we're going to see a 20 percent decline. It could get to $1.38, $1.40 on a bad day, or a bad week. But I think generally speaking, it's a little pre-election angst," he said.

His worst case scenario,  however, was to an unlikely level of $1.05. He did say he was surprised by the speed of the pound's decline. "I hadn't anticipated it going as drastically weak so quickly,"he said.

Magnus said if opinion polls continue to show the lack of a clear majority, the market will be spooked by concern over a lack of leadership and consensus to work on the U.K.'s public debt problems.

"I don't think the issue for the U.K. is default, the way it is for Greece. Greece is in a serious situation as is Spain and Portugal. They've lost control of their policy decisions. They can't do quantitative easing. They can't move interest rates. They can't do anything, but inflict a lot of pain on the economy," he said. For now, he said the market's view is that the Greek situation will be resolved. Greece is expected to float a 10-year bond this week, ahead of a major refinancing in the spring.

"I just think it will be resolved for the moment because it's too critical to let it drift," he said.

Getting Technical

John Roque, technical analyst at WJB Capital, said the move up in stocks is likely to continue for now. "We think the S and P gets the benefit of the doubt right here. It's an upward sloping 200-day moving average. NYSE new lows are nonexistent, and NYSE cumulative breath has recently made a new high," said Roque, who appeared on "Fast Money."

"It's hard to fight it although there's been a lot of talk today about Goldman Sachs, which is one of our bellwethers. Some of our bellwethers are weak and they have us cautious here but it's tough to get paid on the short side," he said.

Tony Dwyer, an analyst with Collins Stewart, also sees a move higher for stocks. Dwyer, in fact, writes in a recent note that his view is confirmed by a rare buy signal.

Dwyer pointed to an uncommon event, where the percentage of NYSE issues trading above their 10-day moving average drops below 10 percent. This is a signal that was first triggered on Feb. 18, and it was the eighth instance of this in the past 30 years.

The average one month gain after these events was 5.4 percent, with a maximum gain of 11.2 percent. There was one instance where there was a loss in 1991, when stocks fell 1.3 percent.

After three months, the average gain was 11 percent, with a maximum gain of 19.1 percent. There was a loss again during 1991, of 3.2 percent. One year later, the average gain has been 15.3 percent. The worst one-year return was a gain of 1.5 percent in 1987.

Dwyer said there was just one time when this signal did not work at all. That was in the market decline of 2008, when the buy signal was triggered but stocks were 15 percent lower one-month and three-month later.

What Else to Watch

Kansas City Fed President Thomas Hoenig will appear on CNBC at 10 a.m., in an interview with CNBC senior economic correspondent Steve Liesman.

Minneapolis Fed President Narayana Kocherlakota speaks at 1 p.m. in Minneapolis.

The Senate Commerce, Science and Transportation Committee holds a hearing on Toyota and the government's response, at 10 a.m.

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