In June, U.S. core PCE inflation rose by 0.3% from the previous month, which was expected and the highest monthly increase since February. The annual rate held steady at 2.8%, slightly above the forecasted 2.7%. This data reflects the Federal Reserve’s worries as inflation nears 3%, largely due to price hikes from tariffs on goods. Inflation in services, especially financial services, is adding to the pressure. The Fed sees tariff-related inflation as temporary, but the ongoing 0.3% monthly increases suggest inflation remains unstable, which could affect future rate cuts. The chance of a rate cut in September has dropped from 65% to 39%, with the rate expected to stay between 4.25% and 4.50%.

US Jobs and Stock Market Data

U.S. job data showed mixed results; while claims data improved, announced layoffs increased. U.S. stock markets opened higher due to gains from Meta and Microsoft but closed lower, with NASDAQ dropping by 7.23 points. The Dow decreased by 333.30 points, and the S&P fell by 23.51 points. Copper prices plummeted after new tariffs on semi-finished copper products were announced, though refined copper was unaffected. Prices dropped by $1.23, or 22.05%. Crude oil fell by $0.64 to $69.35, gold rose by $13.89 to $3,289.71, and Bitcoin declined by $1,336 to $116,499. President Trump revealed plans for a trade deal with Mexico and proposed a potential 35% tariff on Canadian imports, secondary tariffs on Russian oil, and urged 17 pharmaceutical companies to lower prices. With core inflation steady at 2.8%, the market is quickly adjusting to the likelihood of no rate cut in September. Reflecting on the 2022-2023 cycle, the Fed maintained a hawkish stance longer than many anticipated, which may happen again. This suggests positioning for prolonged higher rates by using options on Treasury ETFs or shorting short-term rate futures ahead of tomorrow’s jobs report.

Volatility and Market Strategy

The NASDAQ’s drop, which erased a previous 327-point gain, serves as a warning for the stock market. The VIX, a key measure of market fear, has jumped from the mid-teens to over 22 in the past two weeks, indicating rising uncertainty. Traders might want to buy put options on broad market indices like the S&P 500 to protect against further losses, as tech earnings alone aren’t sustaining the market. The sharp 22% decline in copper prices stems from new 50% tariffs on semi-finished products. However, the exemption for raw copper, like cathodes traded on the LME (which only fell 3% yesterday), presents a unique opportunity. This suggests a spread trade: going long on raw copper futures while purchasing puts on industrial companies highly dependent on finished copper imports. Increased trade tensions, including the proposed 35% tariff on Canada, raise the risk of currency fluctuations. This makes buying call options on the USD/CAD pair an appealing hedge against a weaker Canadian dollar. Furthermore, the introduction of secondary sanctions on Russian oil importers could tighten global supply, indicating that yesterday’s dip in crude prices might be temporary. Therefore, considering call options on oil could be worthwhile. Create your live VT Markets account and start trading now.

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