The US nonfarm payrolls report for July showed an increase of 73,000 jobs, which was below the expected 110,000. There were major downward revisions for previous months. The unemployment rate rose to 4.2% from 4.1%. Notable revisions included a drop in May jobs from 144,000 to 19,000 and in June from 147,000 to 14,000. As a result, the BLS Commissioner was dismissed, with comments highlighting how data revisions can change perceptions. Other economic indicators were also disappointing. US construction spending decreased by 0.4%, while no change was expected. July’s ISM Manufacturing Index fell to 48.0 from an estimated 49.5, and the University of Michigan’s sentiment index dipped slightly. Inflation expectations diverged, with one-year inflation rising to 4.5% and five-year expectations dropping to 3.4%.

Response to International Tensions

President Trump announced that nuclear submarines will be positioned in response to international tensions and introduced new tariffs on Canada and Switzerland. Major US stock indices, such as NASDAQ and Russell 2000, experienced declines, and US yields fell sharply. The USD weakened significantly, with the USDJPY down by 2.26%, and the EUR and CHF also declined against the dollar. The Atlanta Fed’s GDPNow indicator revised Q3 growth down to 2.1%. In Europe, there was disappointment regarding US tariffs, as OPEC+ is expected to make production adjustments. Oil prices dropped by more than $2.00 to $67.25. Data from August 1st highlights a significant economic slowdown that derivative traders need to respond to. The unexpectedly low addition of 73,000 jobs, combined with a large downward revision of 258,000 for May and June, indicates that the labor market is weaker than previously thought. Traders should prepare for continued economic weakness in the upcoming weeks. This situation of weak economic data, new trade tariffs, and geopolitical tensions from nuclear submarine positioning suggests higher market volatility. The sharp decline in the stock market supports this view, and traders should anticipate the CBOE Volatility Index (VIX) to stay above recent averages of 15-18. Buying protection through put options on stock indices could be a wise strategy.

Interest Rate Expectations

The bond market reacted swiftly, with the two-year yield dropping over 23 basis points, marking one of the largest one-day movements we’ve seen in 2025. This signals strong expectations that the Federal Reserve will need to cut rates in September and potentially again by year-end. We recommend going long on interest rate futures to bet on further falling yields. For equity traders, the NASDAQ’s 2.24% decline shows the risks facing growth-oriented sectors. This concern is further supported by the ISM Manufacturing Index’s drop to 48.0, a level that historically signals potential economic downturns and recessions. We suggest looking to short stock index futures or purchase bearish option spreads. The U.S. dollar’s significant drop, especially over a 2% fall against the Japanese Yen, stems from decreasing expectations for US interest rates. The Swiss Franc and Yen are reaffirming their roles as safe-haven currencies amid global uncertainty. We believe that shorting the dollar against these currencies is a viable strategy. In the energy sector, the potential for an OPEC+ production increase clashes with growing evidence of slowing US demand. Oil prices have decreased to around $67 a barrel as a result. Given the weak economic data, we see more downside risk for crude oil, making short positions in WTI futures appealing. Create your live VT Markets account and start trading now.

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