The final reading of the US S&P Global Services PMI eased to 50.7 in May from 50.9 and came in below forecasts of 50.9, while the Composite PMI was confirmed at 51.5, undershooting expectations of 51.7. The data kept the US Dollar supported in a risk-off tone, with the US Dollar Index (DXY) trading near a fresh weekly high of 99.50.
Risk sentiment was further pressured by renewed Middle East tensions, with early reports saying Iran resumed attacks on regional neighbours and the US replied with defensive strikes. US equity indices traded in the red, extending losses after the PMI print, while crude prices stayed firm and West Texas Intermediate (WTI) held around $93 a barrel. The DXY also moved towards May’s peak of 99.54, and a move through that level would leave 100 in view.
Positioning Defensively Amid Economic Slowdown
Given the recent economic signals, we see reasons for a defensive posture. The latest ISM Manufacturing PMI reading for May 2026 dipped to 48.7, indicating a contraction in the factory sector for the second consecutive month. This weakness suggests that even with a resilient services sector, we should be cautious about overall economic momentum and consider protective put options on broad market indices.
Commodities, Safe Havens, And Market Volatility
Geopolitical risks are once again driving commodity markets, which presents a clear opportunity. Ongoing conflicts in Eastern Europe and renewed tensions in the Middle East have pushed West Texas Intermediate (WTI) crude back towards $80 a barrel. We believe buying call options on energy sector ETFs or producers is a logical way to gain exposure to potential supply-driven price spikes.
The flight to safety is evident in the currency markets, reinforcing our cautious stance. The US Dollar Index (DXY) is holding firm above the 104 level, showing that investors are seeking safe-haven assets amidst the uncertainty. This dollar strength may continue to put pressure on multinational corporations’ earnings and emerging market assets.
We are positioning for an increase in market turbulence. The CBOE Volatility Index (VIX) has been hovering near multi-year lows around 13, but history shows that periods of calm can end abruptly with geopolitical shocks. We are buying VIX call options as a relatively cheap hedge against a sudden spike in volatility and a corresponding drop in equity prices in the coming weeks.
