S&P 500 futures have fallen by 57 points, or 0.9%, as trading begins this week. Investors are focusing more on global bond yields than on tariff discussions. In the U.S., long-term borrowing costs are nearing 5%. Meanwhile, UK 30-year bond rates have hit 5.70%, the highest level since 1998. The British pound has also dropped 150 pips, now sitting at 1.3392. The economic calendar starts off slowly but picks up with the final U.S. manufacturing PMI from S&P Global at 9:45 a.m. ET, followed by the ISM manufacturing report at 10 a.m. ET. Later, U.S. President Trump is expected to speak at 2 p.m. ET amid rumors about health issues. S&P 500 futures are struggling because the market is rightly ignoring tariff discussions, focusing instead on the real concern of rising global bond yields. The U.S. 10-year Treasury yield is now at 4.95%, just below the significant 5% mark. As a result, the CBOE Volatility Index (VIX) has jumped above 28 this morning, suggesting that buying short-term put options on major indices is a wise move for protecting against potential downturns in the coming days. The sharp decline of the British pound directly results from UK 30-year gilt yields reaching levels not seen since the late 1990s. The Bank of England is grappling with stubborn core inflation, which was still at 5.2% according to last month’s data for July 2025. Traders may want to consider options for further weakness in the pound, as the UK’s economic outlook appears delicate. This morning’s ISM manufacturing report will be crucial as it will show how rising borrowing costs are impacting the U.S. economy in the third quarter. The index had already dipped into contraction at 48.5 in August 2025, and another reading below 50 would confirm that a slowdown is beginning. A weak report could increase the demand for protective put options on industrial and cyclical stocks. Political uncertainty from the White House adds another layer of risk. We saw similar concerns lead to a 2% drop in one day back in October 2024 when health issues briefly arose during the campaign. This kind of risk suggests that holding short-dated options like weekly straddles on the SPY is a smart strategy to manage the expected volatility from this afternoon’s announcement. Overall, the current environment feels reminiscent of the sharp bond market sell-off we experienced in 2022, driven by central bank policies. Federal Reserve comments have consistently highlighted ongoing wage inflation, which remains around 4.5%, as a reason to keep interest rates high. Until this narrative shifts, it seems that the most likely direction for equities is downward, and derivative strategies should be adjusted accordingly.

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