The ISM non-manufacturing PMI in the US dropped to 50.1, slightly above the crucial 50 mark, showing only slight growth. Seven out of ten components declined, with imports and new export orders falling into contraction due to tariff issues. Major US stock indices closed lower. The Dow Jones fell 0.14% to 44,111.74, the S&P dropped 0.49% to 6,299.19, and NASDAQ lost 0.65%, closing at 20,916.55. Crude oil futures ended at $65.16, while Citi forecasts gold to reach $3,500 per ounce within three months.

US Treasury Auction and Yield Movements

The US Treasury auctioned $58 billion in 3-year notes at a yield of 3.669%. Yields rose for 2-year notes to 3.724% and 5-year notes to 3.776%, while the 30-year yield fell to 4.777%. President Trump addressed several topics, labeling some survey data as outdated. He discussed employment numbers, trade tariffs, and foreign policy, asserting his impact on energy prices and international trade commitments. The USD had mixed results, with EUR/USD moving lower after discussions about potential EU tariffs. There were also conversations about possible actions from the Federal Reserve, including a potential rate cut by UBS in September. The ISM Services index is barely growing at 50.1, a sharp decline from earlier this year. This indicates that the U.S. economy’s main driver is struggling, posing risks to the stock market. Derivative traders might consider buying puts on the S&P 500 or Nasdaq as a hedge against a potential downturn in the coming weeks.

Yield Curve and Market Sentiment

The yield curve is flattening, as 2-year yields rise while 30-year yields fall, indicating a market conflict. Traders are facing ongoing inflation concerns while anticipating a slowdown, similar to the volatile periods of 2023-2024. This situation makes options on interest rate futures appealing to capture volatility without choosing a clear direction. We must seriously consider renewed tariff threats, especially regarding a potential 15-20% minimum tariff on EU goods and rates up to 250% on pharmaceuticals. These are serious warnings that could disrupt supply chains still fragile from the pandemic. Protective puts on pharmaceutical ETFs (XPH) and semiconductor ETFs (SOXX) might be wise investments. The prediction of gold reaching $3,500 an ounce in three months is highly optimistic and reflects increasing economic and geopolitical uncertainty. Such a rise from current levels would be reminiscent of the sharp price comeback in 2020. Buying long-dated call options on gold futures or related ETFs like GLD could provide substantial gains if this forecast holds true. The US dollar is showing mixed results, but the euro appears vulnerable due to the imminent tariff threats against the EU. Shorting the EUR/USD pair through futures or options seems like a smart strategy against rising trade tensions. This currency pair has reacted sharply to trade news, experiencing significant declines during earlier tariff rounds in the 2018-2019 period. While the Atlanta Fed’s GDPNow estimate has increased, we should pay attention to the weakening forward-looking survey data. Business activity, new orders, and employment are all losing momentum, with feedback from respondents blaming tariffs for delays in projects. This trend indicates that weaknesses could spread, making bearish positions on cyclical sectors like industrials and materials more attractive. Create your live VT Markets account and start trading now.

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