US industrial production data is set to be released, with expectations of no change at +0.0% compared to last month’s +0.3%. Capacity utilization is expected to dip slightly from 77.6 to 77.5. Additionally, manufacturing output is predicted to fall by -0.1% after a previous rise of +0.1%. Further data, coming out at 10 AM, includes US business inventories for June, which are anticipated to increase by 0.2% after no change before. The University of Michigan’s consumer sentiment for August is forecasted at 62.0, a small increase from 61.7. Current conditions might change slightly to 67.9 from 68.0, while expectations are forecasted to drop to 56.5 from 57.7.

US Stock Market Moves

US stocks are showing mixed results. The Dow is up, fueled by Warren Buffett’s Berkshire Hathaway increasing its stake in UNH shares, which jumped by 10% in premarket trading. This contributed to the Dow’s rise of 266 points. Meanwhile, the S&P index gained 6.75 points, while the NASDAQ fell by -30.69 points during premarket hours. The US dollar has been fluctuating since the data release. The EURUSD pair peaked at 1.1699, fell to 1.1672, and then climbed back to 1.1701. The area between 1.1696 and 1.1703 is important for future movements. We see the stagnant industrial production numbers as a direct result of the Federal Reserve’s rate hikes that peaked in late 2024. This cooling effect indicates a loss of momentum in the economy. The expected drop in manufacturing output suggests corporate earnings in this area may face challenges in the coming quarters. The ongoing low consumer sentiment, now at 62.0, shows that households are struggling with higher rates and slower job growth, as highlighted in the latest jobs report. This is a signal to consider protective put options on consumer discretionary sector ETFs. Given that the VIX is currently near 18, below its historical average, buying VIX call options could be a cost-effective way to protect against a potential market downturn.

Market Sentiment and Strategy

Don’t be misled by the Dow’s gains; they are mainly driven by a single non-economic event involving UNH shares. The NASDAQ’s decline is more revealing, signaling concerns that tech growth companies may face challenges in a slowing economy. This trend suggests a ‘risk-off’ sentiment, prompting traders to be cautious about the overall market upside. The dollar’s struggle to maintain its gains reflects a belief that the Fed might lower rates, possibly as early as the first quarter of 2026. Looking back to 2019, we saw similar economic softening before a shift in central bank policy. Therefore, we view options strategies that bet on further dollar weakness, like call options on the EURUSD, as having a good risk-to-reward ratio. Create your live VT Markets account and start trading now.

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