Dow Jones futures rose 0.16% to about 47,000 during European trading hours. S&P 500 futures climbed 0.26%, while Nasdaq 100 futures jumped 0.41%, breaking above 25,350. This increase followed the announcement that US President Trump will meet with Chinese leader Xi Jinping in South Korea on October 30th at the Asia-Pacific Economic Cooperation Summit.

Market Caution Before US Inflation Report

Traders remain cautious as they await the US inflation report, which is expected to show continued high prices. This comes just before a likely Federal Reserve rate cut, with a 98% chance for October and a 92% chance for December, based on the CME FedWatch Tool. On Thursday, the Dow Jones rose 0.31%, the S&P 500 increased by 0.58%, and the Nasdaq 100 gained 0.89%, thanks to tech stocks. Intel’s pre-market shares jumped nearly 8% after strong third-quarter sales. Target and Rivian also saw slight increases of 0.25% and 0.31%, respectively. The US government shutdown has lasted for 24 days, making it the second-longest lapse in federal funding history. The Senate failed to pass the GOP-backed stopgap bill for the 12th time on Wednesday. With Dow Jones futures near 47,000, the market is showing optimism ahead of the Trump-Xi meeting on October 30. It’s important to note that previous meetings during the 2018-2019 trade war often led to short-term relief rallies despite long-term deals being elusive. This suggests that call options on the Dow or S&P 500 with short-term expirations might be a good move. However, there’s a significant risk with the upcoming US Consumer Price Index (CPI) report. Economists predict a 4.1% year-over-year CPI for September, which remains high and above the Federal Reserve’s target. A higher-than-expected inflation number could overshadow any positive trade news, making put options a wise hedge against a possible market drop.

Fed Rate Cut & Market Volatility

The situation is further complicated by the Fed, which is likely to cut interest rates next week, even with high inflation. This suggests the Fed is more concerned about the economic impact of the 24-day government shutdown, which some analysts believe is reducing quarterly GDP growth by 0.2% for each week it continues. This focus on growth over inflation might boost equities but adds uncertainty to policy direction. Due to these mixed signals, we should expect increased volatility. The CBOE Volatility Index (VIX), currently around 18, may not fully reflect the risk from both the CPI data and the trade meeting outcome. A straddle or strangle option strategy could be beneficial, as it allows profits from significant moves in either direction without needing to predict the outcome. We are closely monitoring the technology sector, which has been driving the market upwards. Intel’s strong pre-market performance highlights this strength, and since tech is highly sensitive to US-China relations, options on the Nasdaq 100 index may provide a more direct approach to reacting to the APEC summit results. The 25,350 level for Nasdaq futures will be an important point to watch. Create your live VT Markets account and start trading now.

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