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  • Proprietary Trading Weekly Market Recap For Friday, August 22, 2014

    S&P 500 Notches Up All-time High; Fed Remains Dovish Despite Strong Economic Data

    Proprietary trading of in the U.S. continued to rally last week, with the S&P 500 index notching up a new all-time high. Most of the data last week was strong, as housing starts, existing home sales, jobless claims and the Philly Fed survey all came in better than expected. The Euro broke down as the dollar gained traction and oil prices tumbled to test the 2014 lows. The main catalyst for the week was the central bank symposium at Jackson Hole where both Fed Chair Janet Yellen and ECB President Mario Draghi gave speeches.

    Janet Yellen's speech did not really say anything new. The central bank will continue to monitor the economy, but many members still there is a large gap in labor slack with wages remain at historically low levels. Draghi on the other hand all but told investors that a full blown QE might soon be under way. President Draghi acknowledged the weakened growth outlook as September ECB projections are likely to look weaker again. For now the data remains consistent with the ECB's target of modest growth, but downside risks have clearly increased considerably. Much will depend on the length of the tensions with Russia and whether more sanctions are too follow.

    Economic data in the U.S. improved during the week. U.S. housing starts grew 15.7% to 1,093k from 945k in June. Permits for July were 1,052k from 973k in June. Completions rose to 841k in July from 811k in June. Starts under construction were 786k from 764k last month. U.S. existing home sales beat estimates with a 2.4% July rise to a 5.15 million rate from a 5.03 million clip in June to leave a gradual four-month climb from a 4.590 million two-year low in March.

    The Philly Fed August surge to a 28.0 three-year high extending the upward trend seen in July which increased to 23.9 from 17.8 in June, versus a -6.3 fifteen-month low in February.

    The 14k U.S. initial claims drop to 298k in the August survey week trimmed the prior 22k bounce to 312k from 290k at the start of the month. Claims are averaging 303k thus far in August, which is above the tight 296k July figure but well below prior averages of 315k in June and 312k in May.

    Volatility tumbled back to the lower end of the annual range settling near the 12% level for the VIX volatility index. The Euro broke down this week, which should help Europe gain traction. A weaker Euro would help the Eurozone increase exports, but it will likely take a full-blown QE program to accomplish this feet.

    Aug 26 2:32 PM | Link | Comment!
  • Proprietary Trading Weekly Market Recap For Friday, August 15, 2014

    Stocks Rally in Volatile Week

    Stocks experienced a robust week, reversing the prior week's gains led higher by small cap and momentum stocks. Economic data continued to be mixed, with Retail Sales, Jobless Claims, manufacturing and PPI all coming in weaker than expected. Volatility tumbled this week giving back most of the gains seen over the prior two weeks. The VIX declined from 16.5%, back down to the 13% level.

    U.S. Empire State manufacturing index dropped 10.9 points to 14.7 in August after jumping 6.3 points to 25.6 in July. The employment component fell to 13.6from 17.1 previously. But the workweek rose to 8.0 from 2.3. New orders slid to 14.1 from 18.8. Prices paid rose to 27.3 from 25.0, with prices received at 8.0 from 6.8. The 6-month business conditions index surged to 46.8 after falling to 28.5 in July. The 6-month employment index rose to 22.7 from 17.1, with capital expenditures doubling to 18.2 versus 9.1, and prices paid at 42.1 from 37.5.

    U.S. PPI inched up 0.1% in July with the core rate up 0.2%. The June data were unrevised with the headline final demand index up 0.4% and the core rate up 0.2%. Goods prices were unchanged after a 0.5% June gain, amid a 0.6% decline in energy and a 0.4% rebound in food. Services prices edged up 0.1% following a 0.3% June increase, with transportation/warehousing up 0.5% and trade up 0.2%. The price data remain tame, in line with expectations, and won't give the FOMC reason to move to a more aggressive policy normalization path.

    NYMEX crude is up 9 cents at $95.67/bbl, after falling more than $2/bbl on Thursday. A calmer geopolitical backdrop, abundant supplies, and contracting demand all came together to beat oil down to levels last seen in early April. China crude demand fell 6% in July, according to Reuters data, while stagnant growth in Europe has contributed to oil price weakness. The market will eye U.S. production data at 9:15 EDT this morning for a gauge on U.S. demand.

    U.S. retail sales were unchanged in July with the ex-auto component up 0.1%, both missing expectations. June's sales were unrevised at 0.2% overall, and 0.4% ex-autos. Excluding autos, building materials, and gas, sales up 0.1% in July after a 0.5% June gain. Auto sales dipped 0.2% after a 0.3% decline in June. General merchandise sales fell 0.5%, followed by non-store retailers which posted a 0.1% loss.

    Initial jobless claims bounced 21k to 311k, which was a greater climb than expected, for the week ended August 9.Continuing claims rose 25k to 2,544k for the week ended August 2. Despite the bounce, it's the lowest readings since 2007. The four-week average rose to 296k, more indicative of the claims trend as large swings are typical during this holiday-packed time of year.

    Eurozone Q2 GDP on Thursday disappointed as German activity contracted and French growth stalled. Italy meanwhile has fallen back into recession and only strong growth rates in former crisis countries such as Spain, prevented a contraction in overall Eurozone GDP. Still, the weakness in Q2 is partly the flip side of the stronger than expected Q1 number. While confidence indicators do show some weakness, and the balance of risks remains on the downside, we see data in line with the ECB's central scenario of modest but ongoing growth, and do not expect a change in the central bank's wait and see stance.

    Aug 18 1:57 PM | Link | Comment!
  • Proprietary Trading Weekly Market Recap For Friday, August 8, 2014

    Stocks Gyrate as Geopolitics and Central Banks Take Center Stage

    Stock prices remain volatility this past week, as investors needed to absorb a combination of earnings, economic data, and central bank decisions on monetary policy as well as the ebbs and flows of the current geopolitics.

    Three major central banks met this week and each kept monetary policy unchanged. The Bank of England did not issue a statement as it is their policy when nothing chances. The European Central Bank met and the press conference that followed reflected the continued dovish view of Central Bank President Mario Draghi. The stance of the ECB is a wait and see policy but they are armed and ready with a potential full quantitative easing program.

    The Bank of Japan kept policy unchanged and reiterated its commitment to increase base money by 60-70 trillion Yen per year through aggressive asset purchases. The statement said the decision was taken by unanimous vote. The statement said the economy has continued to recover moderately, although it noted a decline in demand.

    Following last week's better than expected GDP report, traders received additional information. The U.S. wholesale trade report revealed tiny June gains of 0.2% for sales and 0.3% for inventories that undershot larger respective prior gains of 0.7% and 0.3% in May, and 1.3% and 1.0% in April to leave a disappointing report overall. This will likely change how many view a revision in the 4.0% Q2 GDP growth figure, given a likely big $12 billion downward Q2 bump in wholesale inventories alongside a $6 billion factory inventory hit that leave a big $18 billion downward bump for Q2 inventories overall. The expected Q2 GDP growth boost reflects an expected $15 billion hike in net exports, a $3 billion boost in construction, and a $2 billion boost in equipment.

    On the US employment front, the 14k U.S. initial claims drop to 289k in the first week of August defied the expected unwind of the July boost that was presumably evident with the prior 23k pop to 303k. Claims are entering August below the already-tight 296k July average, following prior averages of 315k in June and 312k in May. Payrolls face ongoing upside risk from tight claims, a firm producer sentiment and ADP trajectory, solid vehicle assembly rates into August, and an ongoing consumer confidence climb back above mid-2013 levels.

    Gold remains within a large consolidation on the weekly chart, but the yellow metal is making some bullish waves with a surge on the daily chart. The weekly Spot Gold is seen crossing the 1300 level at least a dozen times since June 2012. Overall, gold prices are in a consolidation range within a downtrend, and a consolidation within a trend is typically a continuation pattern. This means the consolidation is a bearish continuation pattern.

    Volatility remained elevated with the VIX hovering near 4-month highs. The VIX measures the implied volatility of the "at the money" strike prices on the S&P 500. The higher the implied volatility the more it cost to purchase options and buy protection against an adverse move in the S&P 500 index.

    (click to enlarge)

    Aug 18 1:55 PM | Link | Comment!
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