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Proprietary Trading Weekly Market Recap For Friday, June 27, 2014

|Includes:SPDR S&P 500 Trust ETF (SPY)

Volatility Returns but S&P 500 Only Dips 0.10%

Data throughout the past week was mixed, with second quarter housing number reflecting relatively strength, while Q1 GDP was much softer than expected. Volatility increased as the second quarter approached a close, as investors prepare for a deluge of data next week. Proprietary trading opportunities under pressure for most of the week, while yields edged slightly higher. For the week the S&P 500 was down only 0.10%.

U.S. new home sales surged 18.6% to a 504k annual rate in May versus 425k in April. March's 407k reading was nudged up to 410k, which was the highest reading since May 2008. Sales were up in all four regions of the country, with strength mostly from the West and Northeast. The months' supply of homes dropped to 4.5 from 5.3. There were 189k homes on the market, the same as in April. The median sales price rose 4.6% to $282,000 in May from $269,700 which was up 6.9% y/y versus -3.4% previously.

Despite better than expected Q2 data, investors needed to grapple with a revision to first quarter growth. U.S. Q1 GDP growth was revised sharply lower to a -2.9% rate from -1.0% previously in the second report, and a 2.6% Q4 pace. This number was much worse than even the most pessimistic forecasts. Personal spending growth was revised down to a 1.0% clip from the prior 3.1% pace and a 3.3% rate in Q4. Fixed investment was revised up a bit to a 1.8% decline versus -2.3% in the second report, with nonresidential spending -1.2% versus -1.6% previously, and residential spending -4.2% versus the prior -5.0%. Government spending was unrevised at -0.8%.

On the employment front the 2k U.S. initial claims drop to a lean 312k in the third week of June extended the 4k drop to 314k in the BLS survey week, as the figures sit closer to the 298k cycle-low from early-May than the 345k recent-high at the end of April. The tightening in claims since April implies upside risk to our 205k June non-farm payroll forecast. Claims are averaging 315k thus far in June, following prior averages of 312k in May, 322k in April 320k in March, and 337k in February. The 314k BLS survey week reading undershot recent BLS figures of 327k in May 323k in March and 334k in February.

U.S. May personal income rose 0.4% with spending up 0.2%. The 0.3% April income gain was unrevised while the 0.1% dip in consumption was bumped up to unchanged. However, March's 1.0% gain was nudged down to 0.8%. Wages and salaries were up 0.4% last month after a 0.3% April increase Disposable income rose 0.4% too versus 0.4% in April (revised from 0.3%). The savings rate rose to 4.8% from 4.5%. The chain price index and the core rate were each unchanged at 0.2%.

In Fed speak, the Fed's Bullard said it's getting harder to justify the low interest rate policy in a speech titled "Income Inequality and Monetary Policy: A framework with Answers to Three Questions." Bullard, though more dovish in recent years, is an inflation hawk and has been suggesting normalization is clearly in the cards as some inflation indicators are on the rise.

Stocks: SPY