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  • Proprietary Trading Weekly Market Recap For Friday, September 12, 2014

    Stocks Hold Steady ahead of FOMC Meeting

    Stocks were on the defensive for most of the week although proprietary trading sentiment did not shift decisively negative, and there were many trading session were stocks were nearly unchanged. Economic data was mixed following the prior weeks softer than expected payroll report. Jobless claims climbed, import prices were soft but retails sales were relatively positive. For the week, the S&P 500 index was down by 1.1%.

    The dollar continued to gain traction during the week and the big story with the USD/JPY hitting a fresh 6-year high above 107. Interest rate differentials continue to move in the dollar favor, as the spread between Treasuries and the German bund moving above 150 basis points.

    The upward shift in the dollar has had a negative impact on commodity prices. Gold moved down testing the 2014 lows, while WTI crude oil hit $90 per barrel which is also an 18-month low. As short term interest rates continue to gain strength ahead of next week's Federal Reserve meeting, commodity prices should continue to feel the pinch.

    In economic news, U.S. August retail sales climbed 0.6% in line with proprietary trading expectations, though excluding autos rose sales volumes increased 0.3%. The zero reading for July headline sales was increased up to a 0.3%, and June's 0.2% increase was revised to 0.4%. July's 0.1% ex-auto component was revised up to 0.3%, and the 0.4% June gain was nudged to 0.5%. Overall, the revisions made the report robust. Gas sales slipped 0.8% as prices have come down, creating a drag on the aggregate volume as calculated by the Commerce Department.

    On the inflation front, U.S. import prices dropped 0.9% while export prices slipped 0.5%, reflecting weaker commodity prices and the stronger dollar. The 0.2% drop in July import prices was revised down to -0.3%, but June's prior 0.1% gain was bumped up to 0.2%. The flat reading on July export prices was boosted to 0.1%, and June's -0.5% was nudged down to -0.5%. Within the import category, petroleum prices fell another 4.4% after July's 1.7% drop.

    On the employment front, U.S. initial jobless claims rose 11k to 315k in the week ended September 6, after rising 6k to 304k the week. That brought the 4-week moving average to 304k from 303.25k. The headline number is in contrast to expectations for a decline, but the Labor Day holiday may have affected the seasonal results.

    Looking forward traders will be eyeing next week's Federal Reserve announcement on interest rates which will be announced following the FOMC's two day meeting on September 16, and 17. Markets have priced a potential change to the language focusing on the "words considerable time" which suggests that rates are in the process of normalization.

    Yellow has proved in the past and will likely again that she is a dove, and with prices remaining subdued she could easily say nothing has changed. With the jobs number remaining weak, the status quo should keep the peace in the capital markets.

    Sep 23 1:05 PM | Link | Comment!
  • Proprietary Trading Weekly Market Recap For Friday, September 5, 2014

    Stocks Consolidate As Mixed Data is Offset by ECB Rate Cut

    Stocks were able to gain their footing at the end of the week, as proprietary trading professionals investors released that the Federal Reserve would be in no rush to raise rates, especially if payrolls were only growing at 142K per month. Given Thursday's surprise rate cut by the European Central bank, the tone returned to the goldilocks scenario that had proceeded this past week. For the week the S&P 500 index climbed 0.2%, but closed at an all-time high.

    (click to enlarge)

    Data prior to Friday was robust and stronger than expected. U.S. ISM non-manufacturing index rose to 59.6 in August, better than expected, versus the 58.7 in July. The August number is the best since August 2005. The business activity index climbed to 65.0 from 62.4. The employment component improved to 57.1 from 56.0. New orders dipped to 63.8, however, from 64.9 which was the highest going all the way back to August 2003. New export orders fell to 52.5, not too surprising given the slowing in growth in Europe and parts of Asia, from 53.0.

    On the manufacturing front, the August ISM jumped to 59.0 from 57.1 in July. This was the highest printing in this reading since July '04. The employment index ticked down to 58.1 from 58.2 last month. The production component grew to 64.5 from 61.2.

    Despite the stronger than expected data during the week that pushed 10-year yields back up to 2.45%, the payroll data on Friday disappointed. U.S. nonfarm payrolls increased only 142k in August after a revised 212k July gain and a 267k jump in June. The labor force declined 64k versus the 329k surge in July, while household employment increased only 16k versus July's 131k gain. The unemployment rate ticked down to 6.1% versus 6.2% previously. Average hourly earnings edged up 0.2% versus the 0.1% increase in July. The workweek was steady at 34.5. Private payrolls were up 134k, with the goods producing sector adding 22k.

    The news that generated the most volatility was the surprise rate cut by the European Central bank. The ECB cut rates, and confirmed the start of the ABS purchase program, which was introduced in June, and another covered bond purchase program. Draghi did leave the door open for additional measures and said the lower bound on rates has now been reached, which leaves few other options than full blown QE should the situation get worse..

    The ECB cut official rates by 10 basis points, which left the main refinancing rate at an historic low of 0.05%. The deposit rate was cut to -0.20% and the marginal lending rate to 0.30%. Draghi confirmed that the cut was also designed to give a clear signal to markets that the lower bound on rates has now been reached, which should support the uptake of the TLTRO program when it starts. The Euro tumbled after the news, but gave a boost to European stocks, which could continue to move higher in the coming months.

    Sep 12 2:54 PM | Link | Comment!
  • Proprietary Trading Weekly Market Recap For Friday, August 29, 2014

    Stocks Gain Ground Ahead of ECB Decision

    Proprietary trading volume continued to grind higher notching up all-time highs on the large cap index, which the smaller caps continue to lag. Data this past week continued to show moderate growth with the exception of the increase in Q2 GDP. Next week market participants will focus on the European Central Bank which is scheduled to meet to discuss the potential need of a full blow bond purchase program. For the week the S&P 500 notched up a 0.75% gain.

    With regard to U.S. interest rates, traders are focused on wage growth which has been lagging and creating a gap in the U.S. Fed Chair Yellen didn't provide any definitive clues on rate hike timing in her Jackson Hole speech, leaving market assumptions of mid-2015 largely intact. To the contrary, she seemed to go out of her way to strike a more balanced tone than the more hawkish FOMC minutes earlier in the week. The upshot was that she did leave market participants with any new policy path which she has said is data dependent.

    Market expectations for additional ECB action are running high as geopolitical tensions intensify and drag down German as well as Eurozone growth. Inflation at the same time remains very low and is already in negative territory in some of the former crisis countries. Still, with the TLTRO program yet to be implemented and Friday's Eurozone inflation number showing an expected decline, there is a strong likelihood that the central bank will hold out on broad based asset purchases. Draghi could implement another mini rate cut to soften the blow and enhance the attractiveness of the TLTROs, but QE does not seem on the cards yet, even if the chances are rising.

    ECB's Draghi stole the headlines at the Jackson Hole Symposium, by coming back from the ECB's summer holiday and throwing markets another bone. The central bank raised expectations for further ECB action, by saying that Governing Council will acknowledge recent developments and will use all the available instruments needed to ensure price stability over the medium term.

    U.S. durable goods orders surged a record 22.6% in July after a 2.7% jump in June (revised from 1.7%). Boeing orders contributed mightily and boosted transportation orders 74.2%, while vehicles and parts increased 10.2%. Of note thought, excluding transportation, orders declined 0.8%. Non-defense capital goods orders excluding aircraft dipped 0.5% after a 5.4% June gain (revised from 1.4%). Shipments were up 3.3%, with the non-defense capital goods ex-aircraft component increasing 1.5%. Inventories rose 0.5%. The inventory-shipment ratio dropped to 1.61 from 1.66 previously (revised from 1.68). The declines in some of the key components will temper the huge headline gains

    Sep 02 2:05 PM | Link | Comment!
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