Proprietary Trading Rebounds Following Strong Jobs Data
Equity markets remained volatile this past week, as a mixed bag of number helped create choppy conditions. As the calendar turned to October 1, 2014, investors needed to absorb a plethora of economic data including ISM manufacturing and services, as well as, both private and public payroll data. While the ISM numbers, which are coincidental numbers, were weaker than expected the jobs data was robust. Despite a strong rebound on Friday, the S&P 500 index closed down 0.75% for the week.
On Wednesday, the ISM released its manufacturing purchasing manager's index for September. The ISM fell to 56.6 compared to a median estimate of 58.1 from 59.0 in August. Last month's 59.0 headline set a new high back to July '04 and compares to last May's low since July 2009. The employment index fell to 54.6 from 58.1 last month. The production component grew to 64.6 from 64.5. The inventory component fell to 51.5 from 52.0 last month.
On the employment front the ADP private payroll report came in at 213K jobs which was broadly in line with expectations, unemployment claims dropped, which bodes well for further gains. Initial jobless claims fell another 8k to 287k for the week-ended September 27. The 287k mark is the lowest reading since 281k in the BLS survey week of September. Continuing claims fell 45k to 2,398k for the weekended September 20.
On Friday, the Labor Department released its non-farm payroll report. U.S. nonfarm payrolls increased 248k in September. August's 142k gain was revised up to 180k, while July's 212k was increased up to 243k, for a net +69k. The unemployment rate dropped to 5.9% from 6.1%. However, that was due to a 97k decline in the labor force after falling 64k previously, while household employment climbed 232k versus a 16k August gain.
Private payrolls surged 236k, with the goods producing sector adding 29k, while construction jobs increased 14k, and manufacturing employment edged up 4k. The service sector added 207k jobs. Government employment rose 12k, with a 2k decline on the Federal side. Average hourly earnings were unchanged after a 0.3% gain in August. The workweek rose to 34.6k versus 34.5 previously.
Technically the equity markets are not out of the woods. The S&P 500 index needs to recapture the 50-day moving average, while the Russell has formed a head and shoulder reversal pattern. Momentum is negative on all major indices, as the MACD (moving average convergence divergence) index hits its lowest level in the past 6-months.