Investors find themselves playing the waiting game this morning for the European Central Bank’s announcement, which will spell out the details and timing of the eagerly anticipated asset purchase facility. An indication of Europe’s hopes: the euro hit an 11-year low against the U.S. dollar during trading this morning, while European Union sovereign debt and equity markets rose. Meanwhile in London, the Bank of England made its monthly policy rate announcement. As expected, bank governor Mark Carney held the course, keeping rates unchanged for a 72nd consecutive month. While expected, the decision did not placate critics of the Bank of England’s policy course. In a statement this morning Kevin Doran, chief investment officer at Brown, Shipley & Co. in London, noted, “In an effort to bring about market corrections we’ve seen the steady introduction and creep of macroprudential policy from the Bank of England — such interference wouldn’t be necessary if the current economic policy wasn’t faltering.”
AbbVie announces major acquisition. In the latest major merger within the pharmaceutical sector, suburban Chicago–based AbbVie yesterday announced an agreement to buy Sunnyvale, Calfornia–based Pharmacyclics in a deal valued at $21 billion. The cash-and-stock acquisition will provide AbbVie with a major foothold in the blood cancer treatment market. It also marks AbbVie’s return to the M&A arena after its proposed deal to merge with U.K.–based Shire last year fell apart after a change in U.S. tax inversion laws.
French unemployment reaches new high. Insee employment data released today indicated that the jobless accounted for 10.4 percent of the working-age population in the final three months of 2014, the highest level since new calculation methods were introduced in 1998. Adding to France’s labor woes, 6.5 percent of workers are classified as underemployed, with a disproportionate underrepresentation of young people in the ranks of full-time job holders.
Federal Reserve to announce stress test results. The Federal Reserve will announce today the results of stress tests for systemically critical financial institutions. The announcement marks the public debut of the bank’s new primary regulatory body, the Large Institution Supervision Coordinating Committee, overseen by Daniel Tarullo, a member of the Fed’s Board of Governors.
China lowers growth targets. Remarks by Premier Li Keqiang released in advance of China’s annual parliamentary session in Beijing include an estimate of 7 percent growth for 2015. While this guidance represents the slowest growth rate in nearly 25 years for the world’s second-largest economy, Li stressed that a painful process of structural reform was underway as China matures towards domestic demand-driven growth in place of exports and investment.
U.S. jobless claims and factory orders data to be released. Investors will parse weekly jobless claims carefully looking for any signal that the ranks of the newly unemployment are stabilizing after a modest increase last week. Separately, U.S. factory orders are expected to have rebounded from a drop in December.
Kremlin under scrutiny. The Russian Finance Ministry today confirmed that the car sought by authorities in relation to the assassination of opposition leader Boris Nemtsov belonged to a security contractor employed by the Ministry. The muddled message provided by the Kremlin as the investigation has continued — a combination of adamant denials of government involvement and admissions of government ties to the alleged assassins — has led to rampant speculation in media outlets. Western leaders already imposing stiff economic sanctions on Russia have denounced the killing and called for an independent investigation.
Portfolio Perspective: Light Vehicle Sales Make a Pit Stop in February — Andrew Labelle, TD Economics
U.S. light vehicle sales fell to 16.16 million units on a seasonally-adjusted annualized basis in February, below analysts’ forecasts of 16.7 million units and down from 16.55 million in January. Although disappointing, it was still the highest February sales level since 2007, and up 5.4 percent year-over-year.
Much like last month, the light truck segment continued to be the key driver of sales in February, rising by 11.3 percent year-over-year relative to an outright year-over-year decline of 1.1 percent for passenger cars. Light trucks accounted for 55.5 percent of total sales during the month, compared to 52.5 percent of all sales over the same period last year.
Sales in the first quarter so far have cooled from the torrid 16.7 million level set during the third and fourth quarters of 2014. We do not view this setback as anything more than temporary, however. Although certainly not as bad as last year, some of the weakness in February can be chalked up to harsh weather. In fact, we may see a repeat of last year, where a quiet start to the year gave way to robust gains, with 2014 the best year for sales since 2006.
We fully expect auto sales to pick up in the months ahead. The labor market continues to add jobs at a healthy clip, while real personal disposable income growth over the past three months is the highest it has been in two years. This points to greater purchases ahead en route to our annual forecast of 16.85 million light vehicle sales for 2015.
Andrew Labelle is an economist with TD Economics, part of TD Bank Group, in Toronto.
