US Federal Reserve Governor Michelle Bowman recently suggested cutting interest rates for the rest of 2025, pointing to issues in the labor market as more urgent than inflation worries. In other news, China’s Consumer Price Index (CPI) and Producer Price Index (PPI) figures for July were released. Nvidia and AMD will give 15% of their chip sales revenue from China to the US for export licenses. Although Japan’s market was closed for a holiday, US equity index futures showed slight increases. In the US, military preparations were observed for a possible deployment in Washington, while Japanese markets remained shut, leading to lower trading activity. The US dollar weakened a bit, and currency pairs traded within tight ranges. In Asia, stocks saw small increases: Australia’s S&P/ASX 200 rose by 0.28%, Hong Kong’s Hang Seng climbed by 0.26%, and the Shanghai Composite increased by 0.5%.

Cryptocurrency and Market Movements

Bitcoin (BTC/USD) has gone past $121K, and Ethereum (ETH/USD) hit its highest level since December 2021, but US bond trading remained limited. The news about Nvidia and AMD’s export tax agreement with the US government has gained more attention. The market is closely watching developments in trade and interest rate policies. With Governor Bowman now pushing for rate cuts at all remaining meetings this year, the market’s focus has shifted from inflation to the weakening labor market. This change suggests traders should prepare for lower short-term interest rates, possibly using options on SOFR futures. This dovish signal supports equity indices, making call options on the Nasdaq 100 and S&P 500 appealing. It’s important to recall the Fed’s tough battle with inflation throughout 2023 and 2024, keeping rates at high levels. That struggle appears to be over, but it has negatively impacted the job market, which is the Fed’s new major concern. With the US unemployment rate recently rising from below 4%, Bowman’s comments indicate the central bank’s tolerance for job losses has been reached.

Impact of Nvidia and AMD Agreement

Initially, the news about Nvidia and AMD sharing 15% of their China sales revenue with the US was expected to hurt tech stocks, but it hasn’t. Instead, Nasdaq futures rose in response, showing that hopes for lower interest rates are more critical to the market at this moment. This implies that implied volatility for these specific tech stocks may decrease, as a major political risk has been addressed. China’s economic data remains concerning, with stagnant consumer prices and declining producer prices reflecting weak demand. The failure of another property developer, China South City, highlights that the housing crisis continues. Ongoing weakness in China, our largest trading partner, could put pressure on the Australian dollar, especially since the Reserve Bank of Australia is also predicted to cut rates this week. The ongoing issues in China’s property market are part of a longer trend that started with the defaults of major developers like Evergrande in 2023. These recent deflationary numbers and developer collapses lend support to a long-term bearish outlook on the region’s industrial demand. Therefore, traders might see it as a chance to buy puts on currencies and commodities linked to Chinese growth. In the midst of these significant economic changes, geopolitical tensions and specific market stories are adding volatility. The ongoing conflict in Ukraine and rising tensions with Iran suggest that having some portfolio protection, such as VIX calls, is a wise choice. Meanwhile, the strong rally of Bitcoin and Ether, particularly Ether reaching its highest price since late 2021, shows that a separate bull market is thriving in the crypto space, rewarding strategies based on momentum. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now