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Proprietary Trading Weekly Market Recap For Friday, September 12, 2014

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

Stocks Hold Steady ahead of FOMC Meeting

Stocks were on the defensive for most of the week although proprietary trading sentiment did not shift decisively negative, and there were many trading session were stocks were nearly unchanged. Economic data was mixed following the prior weeks softer than expected payroll report. Jobless claims climbed, import prices were soft but retails sales were relatively positive. For the week, the S&P 500 index was down by 1.1%.

The dollar continued to gain traction during the week and the big story with the USD/JPY hitting a fresh 6-year high above 107. Interest rate differentials continue to move in the dollar favor, as the spread between Treasuries and the German bund moving above 150 basis points.

The upward shift in the dollar has had a negative impact on commodity prices. Gold moved down testing the 2014 lows, while WTI crude oil hit $90 per barrel which is also an 18-month low. As short term interest rates continue to gain strength ahead of next week's Federal Reserve meeting, commodity prices should continue to feel the pinch.

In economic news, U.S. August retail sales climbed 0.6% in line with proprietary trading expectations, though excluding autos rose sales volumes increased 0.3%. The zero reading for July headline sales was increased up to a 0.3%, and June's 0.2% increase was revised to 0.4%. July's 0.1% ex-auto component was revised up to 0.3%, and the 0.4% June gain was nudged to 0.5%. Overall, the revisions made the report robust. Gas sales slipped 0.8% as prices have come down, creating a drag on the aggregate volume as calculated by the Commerce Department.

On the inflation front, U.S. import prices dropped 0.9% while export prices slipped 0.5%, reflecting weaker commodity prices and the stronger dollar. The 0.2% drop in July import prices was revised down to -0.3%, but June's prior 0.1% gain was bumped up to 0.2%. The flat reading on July export prices was boosted to 0.1%, and June's -0.5% was nudged down to -0.5%. Within the import category, petroleum prices fell another 4.4% after July's 1.7% drop.

On the employment front, U.S. initial jobless claims rose 11k to 315k in the week ended September 6, after rising 6k to 304k the week. That brought the 4-week moving average to 304k from 303.25k. The headline number is in contrast to expectations for a decline, but the Labor Day holiday may have affected the seasonal results.

Looking forward traders will be eyeing next week's Federal Reserve announcement on interest rates which will be announced following the FOMC's two day meeting on September 16, and 17. Markets have priced a potential change to the language focusing on the "words considerable time" which suggests that rates are in the process of normalization.

Yellow has proved in the past and will likely again that she is a dove, and with prices remaining subdued she could easily say nothing has changed. With the jobs number remaining weak, the status quo should keep the peace in the capital markets.