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Hawkesby comments on slow responses to rate cuts, flat housing outlook, and increased tariff uncertainties
Recent policy changes have had little effect, and confidence levels remain low. The Governor of the Reserve Bank of New Zealand (RBNZ) mentioned a slower response to recent interest rate cuts than expected.
Global uncertainties are impacting both business and consumer confidence in New Zealand. Tariffs are still a concern, as highlighted by the RBNZ’s Assistant Governor, who criticized their presence.
US stock indices fell, but a late rally lessened bearish momentum and kept upward potential intact.
The US stock market saw declines, with the NASDAQ dropping in three of the last four days and the S&P falling for four straight days. However, the NASDAQ finished above its 200-hour moving average, and the S&P closed above its 100-hour moving average.
During trading, the S&P dipped below both its 100-hour and 200-hour moving averages, hitting a low of 6382.43. A late rally helped it close at 6395.78. The NASDAQ also fell sharply, reaching a low of 20905.99 but closed at 21170.19 after bouncing back above its 200-hour moving average.
Closing Levels of Major Indices
Here are the closing levels of the major indices: – Dow industrial average increased by 16.04 points (0.04%) to 44938.13 – S&P index decreased by 15.59 points (-0.24%) to 6395.78 – NASDAQ index decreased by 142.10 points (-0.67%) to 21172.86 Despite the day’s losses, the indices avoided a more serious decline. Sellers had a chance to push prices down further but didn’t succeed, leaving room for a potential upswing in the next trading session. Since the market didn’t break down, we view the current price movements as a turning point. Sellers had the chance to push indices below crucial technical levels but failed, showing a lack of strong conviction. The S&P 500 is hovering above its 100-hour moving average at 6382, and the NASDAQ is above its 200-hour at 21140. This indecision is understandable given the recent economic data. The July 2025 CPI report showed a steady 3.1%, slightly above expectations, and the latest jobs report indicated a cooling job growth of 195,000 jobs. This situation leaves the Federal Reserve in a data-driven wait-and-see mode before their September meeting, which adds uncertainty to the market’s next significant move.Strategies for Derivative Traders
For those trading derivatives, it’s wise to be cautious and avoid overly aggressive bets in the coming days. The uncertain close suggests that implied volatility may not favor outright option buying yet. This is reflected in the CBOE Volatility Index (VIX), which hovers around 16, signaling concern but not panic. We noticed similar indecisiveness during the volatile summer of 2024 when key moving averages served as battlegrounds for several weeks before a clear trend formed. Thus, using strategies like vertical spreads to manage risk on directional trades would be smart. This allows traders to capture potential moves while limiting losses if the market remains sideways. If the S&P 500 breaks and stays below 6382, we would consider buying puts or launching put debit spreads, aiming for the next support level. On the other hand, a strong rebound from these levels could justify short-term call options, but we’d stay alert. The key is to wait for confirmation rather than guessing the direction of the break. Create your live VT Markets account and start trading now.Timiraos highlights consensus on keeping rates steady, but divisions remain on tariffs and inflation.
The Federal Reserve is split on whether to keep interest rates the same or lower them. Only Waller and Bowman are in favor of a rate cut.
There is disagreement about tariffs. Some officials want more clarity before making policy changes, while others think it’s better to wait for complete information. Most believe that inflation risks are more pressing than employment risks.
Dove Versus Hawk Debate
Doves, like Waller and Bowman, want to overlook price increases caused by tariffs and push for rate cuts. Hawks, on the other hand, worry about rising prices, particularly in services, and believe that the Fed’s current approach is effective at managing the impact of tariffs. Schmid from the Kansas City Federal Reserve criticized the way “inflation ex-tariffs” is calculated, calling it irrelevant. The minutes reveal a growing divide within the Fed, suggesting a heated discussion at the upcoming September meeting. Since July, the debate has heated up. Doves argue that tariff-induced price increases should be ignored and point to weak job data to support their call for early cuts. Meanwhile, Hawks notice rising price pressures and commend the Fed’s steady approach to handling tariff effects. Schmid furthered the division by rejecting the practice of excluding tariffs when calculating inflation. This increasing division in the Fed hints at potential market volatility in the weeks before the September meeting. The uncertainty between holding rates steady or cutting them means opportunities in options markets. The central question is whether to disregard tariff-related inflation, making the Fed’s next move tough to predict.Market Implications
The July 2025 jobs report, released earlier this month, was weaker than expected, with only 150,000 new jobs added and the unemployment rate rising to 4.1%. This data supports the doves advocating for a rate cut in September to safeguard jobs. Conversely, the latest CPI reading shows core services inflation remains stubbornly high at 4.3%, giving Hawks a reason to maintain their position. This clear divide implies that the implied volatility on equity and rate derivatives is likely underestimated. The VIX index has risen from 14 to 19 in the past month, indicating growing policy uncertainty. Traders might consider buying straddles or strangles on major indices before the next inflation report and the September Fed decision, as these strategies benefit from large price swings in either direction. The interest rate futures market now estimates about a 40% chance of a 25-basis-point cut in September, a jump from only 15% a month ago. This suggests the dovish case is gaining ground, but it’s still uncertain. If the Fed decides to hold rates steady, short-term yields might surge sharply. Looking back at the policy debates of 2018, we saw that uncertainty around trade policies and Fed rate hikes led to notable market fluctuations. During that time, the Fed’s communication was crucial; any change in tone triggered sharp re-evaluations. We are likely entering a similar situation, where upcoming Fed speeches will be closely analyzed for any sign of direction. Create your live VT Markets account and start trading now.US stocks declined after FOMC minutes, while bond yields fell and USDJPY fluctuated around moving averages.
The USDJPY Daily Chart
Looking at the USDJPY daily chart, the pair is currently between two key moving averages: the 100-day moving average at 145.44 below and the 200-day moving average at 149.16 above. The price is also below the 38.2% retracement level from the 2022 low to the 2024 high, which is at 148.678. The 50% midpoint sits at 144.581, while the current price is at 147.20. In recent months, the price has stayed within these limits, with notable fluctuations around the US jobs report on July 31. Since that date, volatility has increased, and the market has been uncertain about its direction. The stock market’s decline after the FOMC minutes suggests that the Federal Reserve will be cautious about cutting interest rates. This pattern was reinforced by the July 2025 core CPI report, which showed stubborn inflation at 3.1%, well above the Fed’s target. As a result, protective strategies, like buying put options on the tech-heavy QQQ ETF, could be smart to guard against further declines.Market Uncertainty and Strategies
This uncertainty has caused the VIX, which measures expected volatility, to rise to around 19. This is a significant increase from the calmer levels below 15 that we saw earlier in the year. Traders might take advantage of this by selling call credit spreads on the S&P 500. This strategy profits if the index remains stable or drifts lower, which seems likely in this nervous market. In the bond market, yields are slightly falling even though the Fed’s stance remains tough. This suggests that the market expects a potential economic slowdown. This mirrors the situation from late 2023 when fears about growth started to overshadow concerns about inflation. We think call options on long-term bond funds like TLT could perform well if recent data, like the downward revision of Q2 2025 GDP to 1.5%, continues to signal weakness. For currency traders, the USD/JPY pair is firmly within a range of roughly 145.40 to 149.20. With the Bank of Japan not signaling any major policy changes, there’s no strong reason for a breakout. This makes it a good environment for selling option premiums using an iron condor strategy, designed to profit from minimal movement. Overall, the mixed signals from various markets indicate a period of indecision in the coming weeks. We believe that derivative plays should focus on strategies that manage defined risks within a set range rather than betting on significant directional moves. The economic balancing act resulting from aggressive rate hikes from 2022 to 2024 continues to lead to choppy conditions. Create your live VT Markets account and start trading now.Meeting minutes show Fed participants focused on inflation risks, tariff impacts, and interest rate adjustments.
The minutes from the Federal Reserve’s July 2025 FOMC meeting indicate a strong agreement among members to keep the federal funds rate between 4.25% and 4.50%. The impact of tariffs on inflation remains unclear, although there are noted effects on the prices of goods.
Some members believe the federal funds rate is nearing its neutral level, while a few suggest a closer look at the standing repo facility’s function. The Fed’s GDP forecasts for 2025-2027 have not changed since June, and the review of the consensus statement is ongoing.
Inflation Versus Employment Concerns
Most members see inflation as the main risk, while a few view the risks as balanced, and a couple focus on jobs. This meeting took place before the August employment report, which has influenced economic views since. The consensus is to continue monitoring the situation and not to take immediate action unless necessary. Participants anticipate inflation to rise due to tariffs, but they think the Fed can respond flexibly. While most members support keeping rates steady, two dissented, suggesting a rate cut. Some raised concerns about uncertainty affecting business hiring, while several noted the risk of sustained inflation above 2%. Members observed more vulnerabilities and slower investments, worrying about asset values and some banking risks. A few discussed strategies to handle tariffs’ effects and the implications of stablecoins following the GENIUS Act. Fed staff expect similar GDP growth, with a temporary rise in inflation before it stabilizes. The minutes suggest that the Federal Reserve is currently holding its ground, but there are clear divisions among members. The majority worries about inflation staying above target, especially with new tariffs, while an increasing number are concerned about the job market. This internal conflict indicates ongoing policy uncertainty and likely sharp market responses to new data.Market Volatility and Strategy
The main takeaway is that the Fed is now heavily reliant on data, making the upcoming weeks critical. The weak jobs report from August 1st, showing only 95,000 new jobs, has shifted market sentiment since the July meeting, giving more attention to members concerned with employment. Economic releases, especially the forthcoming Consumer Price Index (CPI) and the next employment report, are now seen as potential turning points for Fed policy. For traders, this suggests increased volatility is likely. Looking back at similar times of Fed indecision, such as in 2019, we saw significant spikes in implied volatility for equity and rate options before data releases and FOMC meetings. It may be wise to prepare for price swings with VIX futures or options on major indices that benefit from higher volatility. Interest rate derivative markets will be crucial for these opposing views. The divided opinions at the Fed mean that Fed Funds futures will react strongly to new data, especially regarding inflation and jobs. Currently, the market estimates a 40% chance of a rate cut by the September meeting, and this probability could change drastically after the next CPI report. A key uncertainty is how tariffs will affect inflation, which the Fed admits it does not fully understand. The latest Producer Price Index (PPI) report for July showed a larger-than-expected rise in goods prices, indicating that some costs are already being passed on. This supports the inflation hawks’ position and creates a cautious environment where strong inflation numbers could undermine hopes for a rate cut, even if job growth is weakening. In light of these factors, non-directional options strategies could be useful. Strategies like straddles or strangles on indexes or Treasury bond ETFs, ahead of the next jobs report, could yield good results, as the data is likely to trigger a significant market move either way. The market is poised for action, and the main risk is being on the wrong side of any data surprise. We should also keep an eye on secondary risks mentioned in the minutes, such as declining housing demand and high asset values. The latest Case-Shiller report shows a third consecutive monthly decline in national home prices, adding to the concerns of some Fed members. Any signs of trouble in these areas could quickly renew calls for a more dovish policy stance, regardless of immediate inflation reports. Create your live VT Markets account and start trading now.Minutes from the July Fed meeting will be released soon, showing differing opinions on interest rates.
The Federal Reserve will soon share the minutes from its July meeting, and the markets are eager for information on potential rate cuts. At the last meeting, the Fed chose to keep interest rates steady, but two governors, Waller and Bauman, voted for a 25 basis point cut, a rare occurrence not seen since 1993.
Most members were cautious about how tariffs might affect inflation while viewing the job market as healthy. However, a recent employment report showed disappointing results, with an average job gain of just 35,000 over the last three months. Current market predictions indicate an 84% chance of a rate cut in September and another by year-end.
Insights from the Federal Reserve Meeting
The upcoming minutes are expected to show a divided yet careful Fed, weighing inflation worries against the need for possible rate cuts. Observers are keen to see how the Fed views employment strength based on the previous meeting. Surveys suggest mixed expectations for Fed Chair Powell’s upcoming speech, with most anticipating a neutral tone. The FOMC minutes, which serve as the official record, are put together by Fed staff and reviewed for precision, providing a clear overview of discussions. Meanwhile, U.S. indices experienced smaller declines ahead of this release, with the S&P down by 22.56 points, NASDAQ by 170 points, and the Dow unchanged. Fed’s Bostic is scheduled to speak later. With an 84% likelihood of a rate cut in September, we’re paying close attention to today’s July Fed minutes release. It’s crucial to see if the discussion recognizes the economic risks highlighted by dissenters Waller and Bauman. Their concerns seem to be supported by the weak employment report from August 1st, which showed job growth slowing considerably. The disappointing employment data, combined with an unemployment rate that rose to 4.1% last month, places the Fed in a tough spot. The core PCE inflation rate, which the Fed prefers to use, has remained steady at around 2.6%, weakening arguments that tariffs pose a current inflation threat. This strengthens the case for an “insurance cut,” compared to the situation in July.Market Reactions and Strategy
Given this situation, there’s a heightened risk of a policy mistake, creating chances for volatility. The VIX index has risen from a low of 13 to over 17 in the past month, indicating increased uncertainty. We are considering buying VIX calls or using SPX options straddles to prepare for a bigger market move following the minutes or Powell’s upcoming speech in Jackson Hole. If the minutes suggest that the Fed’s core leadership is leaning toward a full easing cycle, we could see a strong rally in risk assets. We can recall the Fed’s dovish shift in early 2019, which led to a significant multi-month climb in equities. A similar indication now could be a reason to buy short-dated, out-of-the-money call options on major indices. On the other hand, if the minutes and subsequent speeches convey a “one-and-done” approach to cuts, the market might be disappointed. With the NASDAQ currently testing its 200-hour moving average, a hawkish surprise could lead to a technical drop. We stand ready to buy put spreads to hedge against this downside risk if the Fed’s language turns out to be more cautious than expected. Create your live VT Markets account and start trading now.A $16 billion auction of 20-year bonds yielded 4.876% with varying bid-to-cover rates.
The U.S. Treasury recently sold $16 billion in 20-year bonds with a high yield of 4.876%. At the time of the auction, the yield indicator was at 4.877%. The bid-to-cover ratio was 2.54, slightly below the six-month average of 2.63.
Direct bidders bought 26.5% of the bonds, above the six-month average of 18.3%. Indirect bidders secured 60.64%, which is lower than the average of 67.6%. Dealers acquired 12.88% of the bonds, down from the usual 14.1%.
Auction Summary
The auction received a C+ grade. The participation from direct and indirect bidders was balanced, and dealers underperformed by 1.3% compared to normal. Overall, this is a positive sign but the bid-to-cover ratio was slightly below average. With a high yield of 4.876%, this auction shows that the market demands a lot to invest in long-term government bonds. The Federal Reserve is expected to keep its policy rate above 5% for all of 2025, and this auction indicates that investors predict rates will remain high. Recent Consumer Price Index data from July 2025, showing persistent inflation at 3.5%, backs this outlook. The C+ grade, with no major surprises or strong demand, suggests we might see stable prices for bonds in the near future. The MOVE index, which measures bond market volatility, has been around a moderately high 110. An inconclusive auction like this is unlikely to raise it much higher. This situation is often good for traders selling options to earn premiums, betting that Treasury futures won’t break out of their usual trading ranges.Impact On Market And Trading Strategy
For equity derivative traders, high yields continue to challenge growth stocks, similar to what we saw in late 2023. Increased borrowing costs put pressure on the valuations of technology and other stocks that rely on long-term growth. This could be a chance to explore protective put strategies on indices like the Nasdaq 100. The details reveal decreased interest from foreign buyers, as the indirect bids fell well below the six-month average. This trend may create challenges for the U.S. dollar, as reduced foreign investment in U.S. debt diminishes demand for the currency. Consequently, the U.S. Dollar Index (DXY) has struggled to rise above the 104 level for most of the summer. Create your live VT Markets account and start trading now.European indices show mixed results: DAX and FTSE MIB decline, while FTSE rises.
European equity markets had mixed results. The German DAX dropped by 0.60%, while Italy’s FTSE MIB decreased by 0.36%. Spain’s Ibex and France’s CAC were nearly unchanged, both declining by 0.08%. In contrast, the UK’s FTSE 100 saw a rise of 1.08%.
In the U.S., stocks faced downward pressure, especially the NASDAQ. It fell below its 200-hour moving average of 21,129.29 and ended the day 285 points lower at 21,026.03, which is a 1.34% decline. Attempts to bounce back were unsuccessful, highlighting ongoing difficulties in reversing negative trends.
S&P 500 Struggles
The S&P 500 also faced challenges, slipping below its 100-hour moving average of 6,381.84. A brief recovery reached 6,383.32 but quickly reversed, ending at 6,365. Currently, both the NASDAQ and S&P 500 indices are vulnerable to further declines due to unsuccessful recovery attempts and the inability to hold essential average levels. With both the NASDAQ and S&P 500 falling below key short-term moving averages, this signals bearish trends in the U.S. This weakness comes after last week’s CPI data, which was slightly higher than expected at 3.5%. This raises worries that the Federal Reserve will keep its strict policies in place. Derivative traders might consider buying puts on the QQQ or SPY ETFs to protect against or benefit from potential downturns in the coming weeks. The difference in Europe’s performance, with the UK’s FTSE 100 doing well, shows that sector-specific factors are at play rather than a broad regional trend. The FTSE’s strength is mainly due to its focus on energy stocks, fueled by Brent crude oil prices rising above $95 a barrel due to concerns about supply. Meanwhile, the German DAX is feeling the impact of recent manufacturing PMI data from China, which signals a slowdown and negatively affects German export sentiment.Market Volatility
The current market environment indicates growing concern, as the VIX has increased over 20% this past week to about 18, a level we haven’t consistently seen since spring. This pattern of weakness in U.S. technology stocks alongside strength due to commodities in other regions reminds us of parts of the 2022 rate hike cycle. We should keep a close eye on upcoming central bank statements, as options pricing indicates higher volatility around the September meetings. Create your live VT Markets account and start trading now.The USDCHF falls sharply as the NASDAQ and S&P indices test key moving averages.
The USDCHF has hit new daily and weekly lows, with sellers gaining strength after not being able to exceed last Thursday’s peak. The pair fell below the 200-hour moving average at 0.80724 and the 100-hour moving average at 0.80678, confirming seller dominance.
The price recently dropped below the five-day low and the 50% midpoint of the July 23 decline, now trading at 0.80387, which suggests a bearish outlook. The next key level to watch is 0.80467; if the price rises above this, it could shift to a neutral or bullish view in the short term.
Stock Indices Movement
Stock indices haven’t reached their lowest levels yet. The NASDAQ is revisiting its 200-hour moving average at 21129.67, with a current price of 21092.53. To keep sellers at bay, the price needs to rise above this moving average. Staying below it may strengthen the sellers’ position. The S&P index is also rebounding, retesting its 100-hour moving average at 6382.92, with the current price at 6381.93. It is crucial for the price to stay above the 100-hour moving average to avoid boosting seller activity. With the ongoing selling in the USD/CHF, this presents a good opportunity for bearish strategies. The pair has fallen below several moving averages and key support levels around 0.8043, indicating that sellers are in charge right now. This trend is supported by the more hawkish stance of the Swiss National Bank compared to the US Federal Reserve. The latest US Consumer Price Index (CPI) data, released on August 14, 2025, showed a slight dip in inflation to 2.8%, raising speculation that the Fed will keep rates steady for the rest of the year. In contrast, SNB officials expressed ongoing concerns about domestic prices, highlighting a clear policy split. This situation explains why the pair is testing levels not observed since the significant market changes in 2015.Trading Strategies
For traders, it’s advisable to maintain short positions or consider buying put options on USD/CHF as long as the price remains below the 0.80467 pivot point. This point serves as a key level for the ongoing bearish trend. A continued decline could reach the psychological 0.8000 level in the next few weeks. As for equities, the current uptick in the NASDAQ and S&P 500 appears to be more of a resistance test than a genuine turnaround from the recent downtrend. We need to see if prices can securely move back above their respective moving averages: 21129 for the NASDAQ and 6382 for the S&P. If they fail to do this, it’s likely that sellers will come back into play. This cautious market sentiment is reasonable, especially after the weaker-than-expected US jobs report from early August, which showed a number below 180,000. Along with mixed guidance from major tech companies during late July’s earnings season, there are valid concerns about slowing economic growth. Thus, these technical resistance levels are quite significant. Until the indices can regain those critical moving averages, it’s wise to remain cautious or use this rally to prepare for further downside. Traders might consider buying at-the-money puts on index ETFs or starting small short futures positions. A clear breakout and hold above those moving averages would signal the need to quickly shift away from a bearish outlook. Create your live VT Markets account and start trading now.Trump may fire Fed Gov. Cook if she won’t resign amid accusations, sources say
The Wall Street Journal reports that Trump may think about firing Fed Governor Cook if she doesn’t resign. This comes amid accusations of mortgage fraud against him.
Trump allegedly bought two properties and claimed each was his main home. These are just allegations and are part of a larger investigation.
