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Proprietary Trading Weekly Market Recap For Friday, September 5, 2014

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

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.

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.