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The healthcare sector shows strong gains, while technology experiences mixed performance due to cautious investor sentiment.
Michigan’s consumer sentiment falls to 58.6 due to inflation concerns and decreased buying conditions
The University of Michigan’s consumer sentiment index dropped to 58.6 in August, lower than the expected 62.0 and down from July’s 61.7. Current conditions fell to 60.9 from 68.0, while expectations decreased slightly to 57.2, better than the estimate of 56.5.
Worries about inflation have grown. The one-year inflation expectation rose to 4.9% from 4.5% last month, and the five-year outlook increased to 3.9% from 3.4%. This 5% decrease in consumer sentiment is the first drop in four months.
Durable Goods Buying Conditions
Buying conditions for durable goods fell sharply by 14%, the lowest point in a year due to high prices. Current personal finances also dropped slightly because of inflation worries, but expectations for personal finances improved a bit. Consumers are not as negative as they were in April when tariff tensions were high. Inflation expectations, both for the short and long term, increased in August, ending a short period of decline. However, these expectations are still lower than the highs seen earlier in 2025. The unexpected drop in consumer sentiment to 58.6 serves as a significant warning for the weeks to come. This type of shock, fueled by renewed inflation fears, usually results in more market volatility. We can expect the VIX, which averaged over 25 during the inflation worries of 2022, to start rising from its recent lows.Impact on Federal Reserve and Interest Rates
The spike in one-year inflation expectations to 4.9% puts pressure on the Federal Reserve. After pausing rate hikes because of tariff concerns in April, this new data may compel them to adopt a more aggressive approach. We might see an increase in bets on rate hikes in the futures market, making put options on bond ETFs like the TLT a smart hedge against rising yields. It’s important to focus on the consumer discretionary sector, which might be hit hardest by this news. The 14% drop in buying conditions for durable goods indicates potential trouble for retailers and automakers. Buying puts on an ETF like XLY seems wise, especially since US consumer credit card debt is nearing record highs, exceeding $1.2 trillion this year. This shift in sentiment suggests a movement away from riskier assets in the short term. The decline in consumers’ opinions about their current financial situation points to a potential drop in spending, which could affect corporate profits. We may want to consider protective put options on broad market indexes like the SPY or QQQ to safeguard against a market downturn. While consumers may no longer fear the worst-case scenario we saw in April, the renewed anxiety about inflation marks a significant change. This is not a reason to panic but an opportunity to strategically add bearish positions, especially in rate-sensitive and consumer-focused sectors. Our strategy should anticipate a higher chance of economic slowing in the coming weeks. Create your live VT Markets account and start trading now.The USDCHF faces pressure, struggling below key moving averages and session lows around 0.8048
The USDCHF has been trending downwards. It has dropped below the 100 and 200-hour moving averages after experiencing daily fluctuations. On Monday, it hit its highest point since August 1st but quickly fell below these crucial averages, dipping past the 50% retracement level at 0.80405, entering a swing zone between 0.8017 and 0.80233.
Although buyers briefly pushed the price up, their momentum faded as the week went on. Recent U.S. retail sales data caused a temporary price spike toward the moving averages, but sellers swiftly brought the price down near session lows around 0.8048. If the price stays below 0.8075, the short-term outlook favors sellers. A move above this level could shift sentiment toward buyers.
Price Movement and Key Levels
If the price breaks below the 0.80405 level and continues down past the swing zone of 0.80233 to 0.8017, a further decline may be expected. Key resistance remains at 0.8075, with the first support at 0.80405 and a second support zone between 0.80233 and 0.8017. The short-term outlook remains bearish unless the price exceeds the resistance at 0.8075. Given the difficulty in holding above 0.8075, we believe the USDCHF is likely to decline. Derivative traders might consider strategies that benefit from a decrease or sideways movement below this critical resistance level. This could include buying put options with strikes targeting around 0.8020 or taking short futures positions with a stop-loss just above the 0.8075 moving average. This technical weakness in the dollar aligns with the latest economic data. The July 2025 U.S. CPI report showed core inflation easing to 2.8%, leading markets to rule out more Fed rate hikes for this year. The worse-than-expected U.S. retail sales numbers this week have also dampened the dollar’s outlook, explaining the rapid emergence of sellers on this news.Swiss Franc Strength and Central Bank Policies
On the flip side, the Swiss franc is showing solid strength. The Swiss National Bank (SNB) has maintained a hawkish approach, with recent comments highlighting concerns about inflation, which rose to an annualized 2.1% last month, above the SNB’s target. This difference in policy between a Fed that is on hold and a vigilant SNB contributes to a weaker USDCHF. We recall the surprising 50 basis point hike by the SNB in June 2022, demonstrating their commitment to combat inflation. This history enhances the SNB’s credibility, making traders cautious about opposing a central bank focused on a strong currency policy. Consequently, shorting USDCHF rallies becomes a more attractive strategy. In the upcoming weeks, we will closely monitor the 0.8040 support level. A significant break here could lead to the June 2025 swing lows around 0.8017. Traders might use bear put spreads to manage risk while positioning for this possible move downward, especially if the price remains capped by the 0.8075 resistance. Create your live VT Markets account and start trading now.In July, industrial production decreased by 0.1%, while capacity utilization held steady at 77.5%.
US industrial production fell by 0.1% in July, while analysts expected it to remain unchanged at 0.0%.
However, June’s production was revised up from 0.3% to 0.4%. July’s capacity utilization hit the predicted 77.5%, and June was also adjusted slightly from 77.6% to 77.7%.
On a yearly basis, industrial production grew by 1.4%, and capacity utilization rose by 1.5%.
Cooling US Economy
The small decline in July’s industrial production of -0.1% adds to concerns about a slowing US economy. This follows the July jobs report, which showed a moderate increase in payrolls of 160,000 and a core Consumer Price Index (CPI) that dropped to 2.9% year-over-year. For traders, these trends indicate that the Federal Reserve’s tight policies are starting to take effect. It’s important to examine the details of the report; the increase in June’s production to 0.4% is noteworthy. This suggests that the industrial sector is not in freefall, but rather experiencing a mild slowdown. This view of a “soft patch,” rather than a sharp downturn, complicates a purely negative outlook on the market. This information affects expectations for future interest rates, which are crucial for derivative pricing. The likelihood of a rate cut in the fourth quarter, originally at about 40% last week based on CME FedWatch data, may now rise to around 55-60% following this report. Positioning in interest rate futures or options on Treasury ETFs like TLT might be a good strategy to benefit from this shift. Given the uncertainty, we can expect an increase in market volatility in the coming weeks. The VIX, currently around a low 14, may gradually rise to the 18-20 range as the market processes mixed signals about growth. Buying VIX calls or using straddles on the SPX could be a smart way to prepare for this anticipated increase in market fluctuations.Market Strategy
This weakness in industrial production signals a chance to hedge or take bearish positions on industrial companies. For instance, considering buying puts on the Industrial Select Sector SPDR Fund (XLI) might be worthwhile. On the flip side, a more dovish outlook from the Fed is generally good for growth stocks, especially in the tech-heavy QQQ. We’ve seen similar situations before, particularly leading up to the Fed’s policy shift in 2019. At that time, slowing manufacturing data preceded a series of rate cuts that ultimately boosted the market. This historical perspective suggests that while short-term caution on industrials is wise, this slowdown could pave the way for a significant market rally later this year if the Fed decides to act. Create your live VT Markets account and start trading now.Industrial production and capacity utilization figures are expected soon, leading to mixed reactions from US stocks.
US industrial production data is set to be released, with expectations of no change at +0.0% compared to last month’s +0.3%. Capacity utilization is expected to dip slightly from 77.6 to 77.5. Additionally, manufacturing output is predicted to fall by -0.1% after a previous rise of +0.1%.
Further data, coming out at 10 AM, includes US business inventories for June, which are anticipated to increase by 0.2% after no change before. The University of Michigan’s consumer sentiment for August is forecasted at 62.0, a small increase from 61.7. Current conditions might change slightly to 67.9 from 68.0, while expectations are forecasted to drop to 56.5 from 57.7.
US Stock Market Moves
US stocks are showing mixed results. The Dow is up, fueled by Warren Buffett’s Berkshire Hathaway increasing its stake in UNH shares, which jumped by 10% in premarket trading. This contributed to the Dow’s rise of 266 points. Meanwhile, the S&P index gained 6.75 points, while the NASDAQ fell by -30.69 points during premarket hours. The US dollar has been fluctuating since the data release. The EURUSD pair peaked at 1.1699, fell to 1.1672, and then climbed back to 1.1701. The area between 1.1696 and 1.1703 is important for future movements. We see the stagnant industrial production numbers as a direct result of the Federal Reserve’s rate hikes that peaked in late 2024. This cooling effect indicates a loss of momentum in the economy. The expected drop in manufacturing output suggests corporate earnings in this area may face challenges in the coming quarters. The ongoing low consumer sentiment, now at 62.0, shows that households are struggling with higher rates and slower job growth, as highlighted in the latest jobs report. This is a signal to consider protective put options on consumer discretionary sector ETFs. Given that the VIX is currently near 18, below its historical average, buying VIX call options could be a cost-effective way to protect against a potential market downturn.Market Sentiment and Strategy
Don’t be misled by the Dow’s gains; they are mainly driven by a single non-economic event involving UNH shares. The NASDAQ’s decline is more revealing, signaling concerns that tech growth companies may face challenges in a slowing economy. This trend suggests a ‘risk-off’ sentiment, prompting traders to be cautious about the overall market upside. The dollar’s struggle to maintain its gains reflects a belief that the Fed might lower rates, possibly as early as the first quarter of 2026. Looking back to 2019, we saw similar economic softening before a shift in central bank policy. Therefore, we view options strategies that bet on further dollar weakness, like call options on the EURUSD, as having a good risk-to-reward ratio. Create your live VT Markets account and start trading now.Goolsbee voices concerns about recent inflation data and its impact on future monetary policy decisions.
Fed official Austan Goolsbee has shared his concerns about the latest Consumer Price Index (CPI) and Producer Price Index (PPI) data. While he is worried, he advises against overreacting to just one month’s figures. Tariffs are adding uncertainty because they haven’t been one-time events. Rising prices combined with potential job losses could become a serious issue.
The Fed is trying to control how tariffs affect goods and their components. It’s not easy to decide which price hikes to ignore and which to address. Rate policies might change; if future inflation reports are consistent, adjusting rates could still be an option. Strong economic signs were observed at the beginning of April, but rising service costs are raising concerns.
Market Reactions
The markets reacted with the NASDAQ dropping by 23 points, while the Dow Jones and S&P rose by 254 and 7.21 points, respectively. US Treasury yields are steady, with small declines in the two-year and 10-year notes. Goolsbee indicated that the expected actions in September may not match rates due to service inflation’s impact. The market still predicts a strong chance of a 25 basis-point cut in September. Fed Chair Powell’s upcoming speech at Jackson Hole could shed more light on the situation. The latest inflation figures have created some uncertainty, challenging the market’s confident expectation of a September rate cut. The CPI for July 2025 unexpectedly increased to 3.5%, fueled by a surprising rise in service costs, which we thought was stabilizing. This highlights a clear gap between the Fed’s cautious approach and the market’s current expectations. This added uncertainty suggests that market volatility may rise in the upcoming weeks. Options pricing, especially for contracts expiring after the next inflation report and the September Fed meeting, is likely to become pricier. Traders might want to explore strategies that capitalize on this anticipated increase in implied volatility as the future becomes less predictable.Bond Market Reaction
The bond market has seen yields decrease slightly, which seems odd given the Fed’s hawkish comments. Currently, the CME FedWatch Tool indicates a 91% chance of a rate cut next month. This may provide an opportunity to position against this common belief if we think the Fed will react seriously to the new inflation data and keep rates steady. Concerns about a “nightmare scenario” of rising prices and falling employment pose a direct threat to the stock market, especially in growth sectors. We experienced a similar situation in late 2023, when persistent service inflation delayed the Fed’s shift and caused a brief market downturn. This suggests that buying protective put options on major indices could be a wise way to protect against a potential dip. We also need to consider new tariffs on electronics and automobile parts that began in June 2025. These costs could show up more significantly in the next PPI report, complicating the Fed’s view on inflation. There’s a risk that these tariff-induced price increases are not just temporary and could force the Fed to pause on rate changes. All attention will be on Fed Chair Powell’s speech at the Jackson Hole symposium on August 22. His remarks will be crucial in confirming the market’s optimistic expectations or aligning with the more cautious tone being expressed now. Any hint that the Fed is more worried about inflation than the market anticipates might lead to a significant reevaluation of assets. Create your live VT Markets account and start trading now.Retail sales meet expectations, but growth slows compared to revised figures from the previous month.
**US Retail Sales Performance**
Retail sales, not including gas and autos, increased by 0.2%. This is lower than last month’s revised growth of 0.6%. The retail sales control group grew by 0.5%, beating the expected 0.4%. The prior month’s figure was revised to 0.8%.
Year-over-year, retail sales rose by 3.92%, down from a revised 4.35% the previous month. Although retail sales met predictions, the growth shows a decline from the revised data of last month.
The July retail sales numbers indicate that consumers might be pulling back. The strong upward revisions for June 2025 suggest that spending was more robust than we thought. However, the year-over-year growth is noticeably slower now. This hints that the momentum we saw in the first half of the year is waning.
**Consumer Slowdown and Inflation Impact**
We’re observing this consumer slowdown alongside steady inflation. The latest Consumer Price Index report indicates core inflation remains high at 3.8%. This puts the Federal Reserve in a difficult position, trying to control inflation while avoiding a sharp economic downturn. The market is currently anticipating a 50% chance of a rate cut by December, making this mixed data even more uncertain.
With this slowing trend, we need to pay attention to potential weaknesses in consumer discretionary stocks. Traders might think about purchasing put options on retail ETFs, which would gain value if these consumer-driven sectors decrease in the upcoming weeks. This strategy focuses on the belief that spending on non-essential goods will decline first.
The uncertainty around the Fed’s next steps is likely to increase market volatility. This makes it appealing to prepare for higher volatility, possibly through buying options on the VIX index. Our strategy bets on larger market swings, without a specific direction, as investors digest this conflicting economic information.
This situation resembles what we experienced in 2023, when speculation about Fed policy caused significant fluctuations in the bond market. Therefore, we are closely monitoring options on Treasury bond ETFs. Any further signs of economic weakness might trigger a rush to bonds, making call options a way to profit from a possible drop in interest rates.
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New York Fed manufacturing index rises to 11.9, surpassing estimates and showing positive trends
The New York Fed’s manufacturing index for August rose to 11.90 from 5.500 last month, surpassing the expected 0.00. This is the highest level since November 2024. The general business conditions index increased by six points to 11.9. The new orders index jumped 13 points to 15.4, indicating strong growth in orders, while the shipments index held steady at 12.2.
In contrast, the inventories index fell by 22 points to -6.4, signaling a drop in stock levels. The employment index slightly increased to 4.4, suggesting small job growth, while the average workweek remained around zero. Delivery times extended as supply issues worsened, impacting these trends.
Price Changes
In terms of prices, the index for costs paid stayed high at 54.1, indicating ongoing increases in input costs. Meanwhile, the prices received index dropped to 22.9, showing moderate growth in selling prices. Although the future outlook index fell 8 points to 16.0, there is still optimism. Many firms expect new orders and shipments to rise, but two-thirds predict more input price hikes in the next six months. Plans for capital spending seem to be low. The August manufacturing report surprised everyone with its strength. This unexpected boost, along with high input prices, gives the Federal Reserve more ability to maintain higher interest rates. We can expect that market predictions for near-term rate cuts will likely be pushed back to early 2026. This scenario reminds us of the inflation challenges of 2023 and 2024, where strong economic data led to rising government bond yields. Data from the CME FedWatch tool will likely show a decreased chance of a rate cut before the year’s end compared to last week. This could make strategies that profit from rising yields on 2-year and 10-year Treasury notes more appealing.Impact on Stock and Bond Markets
For stock markets, strong new orders are positive for industrial company revenues this quarter. However, the risk of higher interest rates persisting may suppress stock valuations, creating a challenging environment. This tension could lead to more market volatility, making strategies that benefit from rising volatility, like buying call options on the VIX index, more attractive. We should also closely monitor longer delivery times and declining inventories. These indicate supply chain issues, similar to those that disrupted corporate earnings in 2022. This situation could squeeze profit margins again, as companies face higher material costs but lower selling prices for finished goods. The decline in future business outlook and weak capital spending plans is concerning. It suggests that while companies are busy fulfilling current orders, they are reluctant to invest in future growth. This could support a pair trade strategy, such as being long on commodities affected by current demand while being cautious with industrial stocks reliant on future investment. Create your live VT Markets account and start trading now.Canada’s manufacturing sales increased by 0.3% in June, but year-over-year figures declined by 2.7%
In June, Canada’s manufacturing sales went up by 0.3%, reaching $68.5 billion. This increase ends four months of decline.
Sales rose in 13 out of 21 subsectors. Notably, the petroleum and coal subsector saw an 11.8% increase, while the food subsector grew by 2.5%. However, these gains were partially offset by a 5.0% decline in the transportation equipment subsector.
Year Over Year Comparison
Compared to last year, total manufacturing sales in June fell by 2.7%. The June sales data, which fell short of expectations, highlights a shaky Canadian economy. Even with a slight monthly increase, it follows four months of decreases, and the year-over-year figure remains negative at -2.7%. This continues to confirm the economic slowdown we’ve been tracking throughout 2025. This weak report, along with recent job data showing unemployment rising to 6.2%, makes a Bank of Canada rate cut more likely. We should prepare for a more dovish stance from the BoC in their September meeting, as the case for keeping rates steady weakens. Traders might consider options or futures that bet on lower overnight rates by the end of the year.Impact on Currency and Trade
As a result, we expect the Canadian dollar to weaken further against the US dollar. The interest rate gap will likely widen in favor of the USD, continuing the trend we observed in late 2024 when the US economy showed more strength. Buying USDCAD call options or futures could be a strategic way to capitalize on this outlook in the coming weeks. The data also shows a clear divide in the economy, with strength in petroleum but notable weakness in transportation equipment. This split suggests it might be wise to take a defensive approach in stock index derivatives, while also considering bullish investments in the energy sector through options on relevant ETFs. The 5.0% drop in transportation equipment may present bearish opportunities in auto parts and related industrial stocks. Create your live VT Markets account and start trading now.In July, import prices increased by 0.4% due to higher costs for fuel and nonfuel items.
In July, US import prices increased by 0.4%, which was higher than the expected 0.0% rise. Before that, import prices had gone up by 0.1%. Year over year, import prices stayed at -0.2%, unchanged from the previous figure.
Export prices rose by 0.1% for the month, matching predictions, but dropped from a previous increase of 0.5%. The rise in import prices was mainly due to higher costs for both fuel and non-fuel imports.
