The USD is slightly up as North America starts its trading day, along with rising stocks and yields after a mixed day yesterday. President Trump is expected to speak on CNBC at the start. US stocks are climbing, and bond yields are increasing slightly after a brief drop. This morning, the US and Canada will release trade data, and the final S&P PMI indices will show manufacturing at 54.6 and services at 55.2. Later, we expect the ISM PMI for July, forecasted at 51.5, up from 50.8 last month. The minutes from the Bank of Japan’s June meeting were released overnight, indicating a willingness to raise rates if growth and inflation meet forecasts, although there’s some disagreement on timing.

Company Earnings Reports

Key earnings reports reveal that Pfizer exceeded expectations with a Q2 EPS of $0.78 and revenue of $14.65 billion. Caterpillar’s EPS slightly missed the mark, but its revenue was above expectations. BP reported better-than-expected revenue and announced a $750 million share buyback. Infineon and Palantir also outperformed profit expectations. European PMI data was mixed. While the UK, Germany, Spain, and China beat expectations, the EU, France, Italy, and China’s composite index fell short. In premarket trading, the Dow, S&P, and NASDAQ are all up, while yields on 2-year, 5-year, 10-year, and 30-year US debts have risen. Commodity prices have gone down a bit, with crude oil, gold, and bitcoin falling in value. With the US dollar and bond yields climbing, we’re keenly awaiting today’s ISM Manufacturing data at 10 AM ET. If it comes in strong, above the expected 51.5, it could confirm economic strength and push yields and the dollar even higher. This makes short-term options on indices like the SPX likely to react strongly around the data release. Inflation has remained sticky, as seen in July’s CPI report at about 3.4%. This puts the Federal Reserve in a challenging position. A strong ISM number would raise the chance of a more hawkish Fed, which traders can take advantage of using options on interest rate futures. The 10-year yield rising back above 4.20% this morning shows that market nerves are increasing.

Market Strategies and Analysis

The CBOE Volatility Index, or VIX, has been in the mid-teens, indicating that option premiums are not excessively high. This offers a chance for traders to buy straddles or strangles on major indices ahead of the ISM data release, allowing profits from notable market movements, no matter the direction. Globally, the economic landscape is diverging, creating opportunities in currency markets. Weakness in the recent Eurozone and France PMI data contrasts with expected strength in the US. This trend supports a long position on the US dollar against the euro, which can be expressed through options on the FXE ETF or directly in currency futures. The latest earnings reports show a mixed market, ideal for pair trading with derivatives. Technology and healthcare are strong, with Palantir and Pfizer beating expectations, indicating bullish call spreads on the XLK and XLV ETFs. In contrast, Caterpillar’s earnings miss hints at margin pressure in the industrial sector, supporting bearish put spreads on an ETF like XLI, especially given the mixed results from China. Commodities are reacting to the stronger dollar and rising yields, evidenced by the notable drop in gold prices this morning. If today’s data reinforces this trend, we expect further declines for gold, making puts on the GLD ETF an appealing hedge or speculative option. Despite some positive economic signals, crude oil’s weakness points to ongoing global demand concerns, justifying a cautious outlook for the industrial sector. Create your live VT Markets account and start trading now.

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