The European trading session is quiet today. The only notable event is the release of Italian Industrial Production data, which usually doesn’t have a big impact on the market or the European Central Bank’s decisions. In the American trading session, the US Producer Price Index (PPI) report will come out. Year-on-year Core PPI is expected to be 3.5%, down from 3.7%. Month-on-month, it’s anticipated to be 0.3%, compared to the previous 0.9%. Markets are focused on how this affects Personal Consumption Expenditures (PCE).

Previous Report Reaction

In the last PPI report, the numbers surprised everyone, mainly due to investment services. This led to a strong initial market reaction, but that quickly faded. The upcoming Consumer Price Index (CPI) report, which will be released with Jobless Claims, could be more influential. If today’s PPI report comes in higher than expected, traders might become cautious ahead of the CPI. Conversely, a lower PPI number could boost risk appetite. Today, we’re paying attention to the US Producer Price Index, expecting year-over-year core inflation to cool to 3.5%. For those trading derivatives, this is less about making bold bets and more about managing risk ahead of tomorrow’s important CPI report. Any unexpected result could lead to a short spike in volatility, but major market movements are likely on Thursday.

Market Volatility and Trader Sentiment

The VIX, which measures expected market volatility, has risen from 15 to over 19 in the past two weeks, signaling growing unease. Following last month’s PCE data, which showed core inflation rising to 3.9%, traders are very sensitive to new information. Even a small change in today’s PPI components could significantly affect short-term options pricing. Given this uncertainty, many traders are buying weekly put options on the S&P 500 to hedge against a hawkish surprise. This mirrors trading patterns from 2022 when any unexpected inflation data could trigger a sell-off. If today’s PPI report is weak, these protective puts might become cheaper, offering a better entry point for hedging before the CPI and Jobless Claims are released. For those expecting big market swings but unsure of the direction, strategies like straddles are gaining popularity. A surprisingly high PPI number would keep the market on edge for a strong reaction to tomorrow’s CPI. On the other hand, a weak PPI could spark a relief rally, making a bet on increased volatility a smart move. Looking ahead, Fed Funds futures now suggest a 60% chance of a rate hike at the October 2025 FOMC meeting. This is a significant increase from the 35% chance seen just a month ago. A strong PPI report today would reinforce this hawkish sentiment and could put pressure on interest rate futures. Create your live VT Markets account and start trading now.

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