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Proprietary Trading Weekly Market Recap For Friday, September 26, 2014

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

Choppy Trade Reignites Proprietary Trading Volatility

Proprietary traders were hammered on Thursday following a robust rally on Wednesday as volatility crept back into inverstors minds. Complacency had rained since January, but it seems the beginning of Autumn has been met with whipsaw price action, as diverging central bank policies are likely to continue to generate conflicting signals. For the week, despite the choppy nature of trade, the S&P 500 was only down 1.37%.

While the U.S. is experiencing moderate growth, which is evident by the revision to Q2 GDP, Europe is experiencing declining sentiment, and a tumbling currency. During the week, the Eurozone released 3-sentiment surveys all which came out weaker than expected.

The mixed U.S. growth numbers are generating volatility as investors are having a hard time deciding if the United States economy is on track or feeling the effects of a stagnating European economy. Early in the week, investors saw a Durable goods report which was much worse than expected.

August durable goods orders plunged by 18.2%, while shipments grew by 3.5%. This is the biggest month over month dip for orders ever and compares to a prior low of -12.9 in Aug '12. Inventories were up 0.4% in August, following a 0.4% July increase. July orders were revised to 22.5% from 22.6%, shipments were revised to 3.7% from 3.5% and inventories were revised to 0.4% from 0.5% initially. Ex-transportation orders grew by 0.7%.

By contrast U.S. GDP grew at a 4.6% rate in Q2, revised up from 4.2% previously and 4.0% in the advance report. Personal consumption expenditure growth held at 2.5%, where it's been since the first report. Fixed investment came in at a 9.5% rate, boosted from 8.1% in the second report with nonresidential spending revised up to 9.7% versus the prior 8.4%, and residential spending up 8.8% compared to 7.2%. Inventories added $49.6 billion compared to $48.7 billion previously. Net imports subtracted $13.2 billion after adding $6.8 bln previously. The GDP price chain price index was steady at a 2.1% pace, with the core rate holding at 2.0% compared to the prior report, and versus respective rates of 2.0% and 1.5% in the Advance report.

In Europe the German GfK consumer confidence dropped to 8.3 in the October reading from 8.6 in September. This was a sharper than expected decline and likely reflects not only the negative economic headlines, but also the mounting uneasiness in Germany over the ECB's low interest rate policy. The breakdown, which is only available until September shows a sharp drop in business expectations as well as the willingness to save. The willingness to buy also dipped, despite the fact that Price expectations declined again. This comes on the heels of Thursday's weaker than expected IFO survey and the soft PMI and Zew surveys released ealier in the week.

German August import price inflation decelerated to -1.9% year over year from -1.7% year over year in the previous month, with prices down 0.1% m/m. Lower energy prices remain a key driving factor, but even excluding oil products, the index was down 1.3% year over year.