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Proprietary Trading Weekly Market Recap For Friday, June 6, 2014

Stocks Hit New Highs; ECB Cuts Interest Rates and Jobs Data is Robust

The past week was cluttered with data, which included interest rate decisions from three major central banks, manufacturing and services data, as well as, multiple US employment reports. Both the S&P 500 index as well as, the Dow Industrials hit all-time highs, as investor sentiment continued to improve.

The Bank of England and Bank of Canada announced that interest rates would remain unchanged which seemed to be a non-event for market participants. The European Central Bank cut rates by 10 basis points, which means the main refinancing rate is now at 0.15% and the deposit rate at -0.10%. This was in line with forecasts.

Additionally, Mario Draghi, the President of the ECB introduced a negative deposit rate. At the same time Draghi announced and extension of the 100% allocations in the tenders, an end to SMP sterilization as well as targeted LTROs, which are hoped to improve lending to the private sector. The package is very broad and helped European stock to rise and proprietary trading volume to resume.

Draghi said the central bank has now pretty much reached the lower boundary on rates, although he left the door open for additional measures, including a broad based asset purchase program. ECB cuts inflation forecast, with the new staff projections predicting inflation at 0.7% this year, versus 1% expected previously. The 2015 forecast was cut to 1.1% from 1.3% and the forecast for 2016 was cut to 1.4% from 1.5%.

There were a number of upbeat data points in the US during the week. The Fed's Beige Book characterized growth as "moderate" to "modest," and indicated all 12 Districts expanded. The report of conditions also indicated consumer spending expanded in almost all Districts, to varying degrees. Non-auto sales were up moderately, with improved weather helping boost activity. Manufacturing activity expanded throughout the country.

The U.S. ISM May Services Index increased to 56.3 extended the April pop to 55.2 from 53.1 in March and a 51.6 four-year low in February, as the index climbs toward the 57.9 seven-year high last August. The ISM-adjusted ISM-NMI measure rose to 56.1, after popping to 55.3 in April from 52.2 in March and a 51.4 two-year low in February, versus a 57.5 seven-year high last August. The employment gauge also rose, to 52.4, after dropping to 51.3 in April from 53.6 in March and a 47.5 four-year low in February. For the May factory surveys, the ISM rose to 55.4 from 54.9.

On the employment front, U.S. nonfarm payrolls climbed 217k in May from a revised 282k April surge and a 203k gain in March, for a 3-month average of 234k. The unemployment rate was steady at 6.3%. Household employment rose 145k, with the labor force up 192k. Average hourly earnings edged up 0.2% following the flat reading for April. The workweek was steady at 34.5. Private employment increased 216k, with goods producing employment up 18k, construction up 6k, and manufacturing up 10k. The service sector added 198k jobs. Federal government employment declined 5k.