US jobless claims fell to 229,000, which is a bit lower than the expected 230,000. The previous number was revised down from 235,000 to 234,000. Continuing claims stand at 1,954,000, which is better than the forecast of 1,970,000. Earlier continuing claims were adjusted down from 1,972,000 to 1,961,000.

Strong Labour Market Indications

These results point to a strong labor market, especially with the drop in continuing claims. Attention will now turn to the ISM PMIs employment components, the ADP report, and the upcoming Non-Farm Payroll report. Given the ongoing strength in the labor market, we need to reconsider when the Federal Reserve might cut interest rates. Core inflation has stayed steady around 3% for most of 2025, so this solid employment data weakens the case for easing monetary policy. The market currently sees a reduced chance of a rate cut this year, with Fed funds futures indicating less than a 25% likelihood of a cut before December, down from over 50% just two months ago. This change in expectations could put pressure on short-term bond futures. Traders might look to position for higher yields by selling Treasury futures or buying puts on bond ETFs. The consistent downward revisions to continuing claims, a trend we’ve seen for the past quarter, highlight the economic momentum that the Fed cannot ignore.

Impacts on Equity Derivatives

For equity derivatives, this “good news is bad news” situation poses challenges, especially for interest-sensitive sectors like technology. We are considering strategies to guard against downside risks, such as buying puts on the Nasdaq 100 or setting up bearish call spreads. The market’s reaction to strong labor data in late 2023, which halted a market rally, serves as a useful historical reference for our current context. Now, all eyes are on the upcoming Non-Farm Payroll (NFP) report, which is expected to drive volatility. Implied volatility on index options is likely to rise soon, with the VIX increasing from its recent low of 13. We see an opportunity in buying straddles or strangles on major indices to capitalize on expected price fluctuations, regardless of direction. We should also consider the “soft landing” narrative, which suggests a strong economy could support corporate earnings and prevent a major market downturn. In this light, the robust labor market is a significant positive that may cushion any sell-off. This perspective supports strategies like selling out-of-the-money puts on the S&P 500 to collect premiums based on the belief that a strong economy will uphold stock prices. Create your live VT Markets account and start trading now.

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