Next week is full of important events, including the August 1st trade deal deadline and US-China trade talks scheduled for Monday and Tuesday. The Federal Reserve, Bank of Japan, and Bank of Canada are expected to announce their rate decisions. Key economic reports will include US Non-Farm Payrolls, ISM Manufacturing PMI, and PCE. The European Union will release CPI and GDP data, along with Australian CPI and Retail Sales. US bond traders are waiting for the Quarterly Refunding announcement. The US-China trade talks will be led by Chinese Vice Premier He Lifeng and US Treasury Secretary Bessent in Stockholm. They aim to extend the 90-day truce on US-China tariffs that is set to end on August 12th. If they fail, tariffs could rise to 145% on US imports and 125% on Chinese goods. Additionally, the US Quarterly Financing estimates will be released on Monday, showing how much Treasury expects to borrow for privately-held net marketable debt.

Central Bank Decisions and Economic Forecasts

According to surveyed economists, the FOMC is likely to keep its benchmark rate between 4.25% and 4.50%. Some predict possible dissent calling for a 25 basis points cut. An advance reading of the US GDP is estimated to show Q2 growth at 2.5%. Meanwhile, Australian CPI is forecasted at 0.8% Q/Q, which is slightly lower than previous figures. In the Eurozone, flat GDP growth of Q2 is expected, a slight decline from Q1’s 0.6% growth. The Bank of Canada is projected to maintain rates steady amid economic uncertainties. For June, US PCE is expected to rise by 0.3% M/M. The Bank of Japan is likely to keep rates at 0.50%. Mixed expectations surround South Africa’s central bank rate decision due to recent inflation numbers. On Friday, US jobs data is predicted to show a slower growth in nonfarm payrolls, along with a slight rise in the unemployment rate. ISM Manufacturing PMI is expected to show modest growth. The upcoming August 1st tariff deadline pressures countries to finalize trade deals with the US to avoid higher tariffs.

Market Volatility and Trading Strategies

We see next week as a potential trigger for market volatility. With so many significant events lined up, traders should expect an increase in options pricing due to higher implied volatility. This situation calls for trading strategies that can benefit from sharp price changes, rather than steady trends. The US-China talks and the tariff deadline pose the biggest binary risk. A successful outcome, like the suggested truce extension by the Treasury Secretary, could lead to a rally in equities. We are considering short-dated call options on major indices to take advantage of possible positive developments. We are confident that the Federal Reserve will keep rates unchanged, so we’ll focus on their guidance. Any dovish signals during their press conference or discussions of a rate cut could lead markets to more aggressively factor in future cuts. The CME FedWatch Tool shows a greater than 60% chance of a rate cut by the September meeting, which could change based on Powell’s comments. The wave of economic reports, especially the US jobs report and Australian inflation, will significantly influence currency markets. If US payroll numbers are much lower than the expected 102k, it would strengthen the case for rate cuts and likely weaken the dollar. Similarly, an Australian CPI print over the expected 0.8% could challenge the likelihood of a domestic rate cut, creating a buying opportunity for the Australian dollar. The Treasury’s financing announcement is crucial for fixed-income traders. We expect the trend of increasing T-bill supply to continue, which should keep long-term rates from rising, putting downward pressure on the long end of the yield curve. This could make steepening trades, which bet on widening gaps between short and long-term rates, appealing. We are also monitoring the Bank of Japan closely, as reports suggest a potential “rate hike environment” could develop later this year. Historically, such changes from the Japanese central bank have strengthened the yen. Meanwhile, the Bank of Canada’s decision is closely tied to trade issues, making derivatives on the Canadian dollar an effective way to speculate on the outcome of US negotiations. Create your live VT Markets account and start trading now.

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