For the mid-week ending September 3, 2014, the markets consolidate while waiting for the European Central Bank's (ECB) policy announcement (tomorrow morning) and the Employment Situation reports (Friday morning) . Russia's Putin has offered a seven-point peace plan while the fighting in Ukraine continues. Economic news this week has been mixed.
Tomorrow at 7 am ET, the ECB will announce its latest monetary policy decision. The economic situation in the EU looks increasingly grim, thus the ECB is expected to keep rates unchanged: refinancing rate at 0.15 percent; marginal lending rate at 0.4 percent; and its deposit facility rate at -0.1 percent. ECB president Mario Draghi indicated that the ECB may initiate a quantitative easing (QE) program similar to what the Fed undertook here in the U.S..
Russia's President Vladimir Putin and Ukraine's President Petro Poroshenko talked by phone about a possible ceasefire. The attempt at a ceasefire follows after more than 100 Russian soldiers and hundreds of Ukrainian soldiers have been killed recently. Part of the solution lies with a trilateral contact group to work out the details. The markets responded positively to the news.
While the economy is moderately improving, the Beige Book indicates that nearly all districts (there are six districts reporting) see shortages in skilled labor while the labor market overall is getting better. Auto sales are at their highest level due to low lender rates and declining fuel prices.
As the threat of ISIS continues in Iraq, Australia has received a "general request" to play a military role. Australia has participated in humanitarian airdrops and arms to the Kurdish Peshmerga forces, but the beheading of an American journalist has now motivated Australia to expand its role.
For option traders, we are now suggesting Put credit spreads at 1.75 standard deviations. The expected price of the SPX at the close on Friday will fall within 1965-2037 (or 2 standard deviations).
For more information about options, see the 'Suggested by the author' links below.