Federal Reserve officials Christopher Waller and Michelle Bowman disagreed with the recent decision to keep interest rates steady, suggesting a cut of 25 basis points. Waller believes the effects of tariffs are only temporary and highlights the need to keep inflation expectations stable. Waller thinks the policy should be nearly neutral rather than restrictive, arguing that keeping rates unchanged could hurt the labor market. Bowman warns that delaying action might worsen job market conditions and slow down economic growth. She supports a gradual shift towards a neutral interest rate to protect employment and meet dual-mandate goals.

Employment Risks

Both officials respect their colleagues’ views but stress the need to take employment risks seriously. They are committed to working together to ensure appropriate monetary policy. Their disagreement reflects their consistent belief leading up to the latest Federal Open Market Committee meeting, with Waller being particularly vocal about the need to cut rates. Waller and Bowman’s dissent indicates a growing divide within the Federal Reserve. While the majority voted to keep rates unchanged, these two members are advocating for a cut now, raising the chances of a policy change at the next meeting in September. Recent data supports their view. The July 2025 jobs report shows payrolls increased by only 155,000, falling short of expectations and marking the third consecutive month of slowing growth. Additionally, the unemployment rate rose to 4.1%, a figure not seen since late 2023.

Market Implications

For traders in interest rate derivatives, this suggests a higher chance of a September rate cut. SOFR futures contracts are expected to see increased buying activity as the market anticipates lower borrowing costs sooner than anticipated. The dissent from Waller and Bowman signals a move toward a more accommodating Federal Reserve policy. This division creates uncertainty, which may increase market volatility. Options traders might look for strategies that benefit from larger price swings, as the VIX has risen from near 12 earlier this year to over 16. The tension between a weakening job market and the cautious majority at the Fed makes significant price movements in either direction more likely. This scenario mirrors events from mid-2019 when the Fed faced internal pressure to cut rates due to slowing global growth, which they eventually did. History shows that when influential voices advocate for cuts and data weakens, a policy shift often follows. The potential for lower U.S. rates could also weaken the U.S. dollar. Traders in currency derivatives may seek to position themselves for a weaker dollar against other major currencies. The dissent among Fed officials makes it harder for the dollar to strengthen, as interest rate differentials are likely to move against it. Create your live VT Markets account and start trading now.

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European stocks struggled in early August due to US trade tensions. Both the DAX and CAC 40 indexes dropped about 2%, wiping out July’s gains. S&P 500 futures fell by 1% as new tariffs from the US weighed on market sentiment. Apple and Amazon’s earnings reports spotlighted the challenges tariffs pose to their performance. Different market segments reacted to the tensions in various ways. The Japanese Yen (JPY) was the strongest currency, while the Swiss Franc (CHF) lagged behind. The USD/CHF rose by 0.4% to 0.8160 after the US imposed a 39% tariff on Switzerland. The EUR/USD remained steady at 1.1410, but GBP/USD decreased by 0.3% to 1.3160. The New Zealand dollar dropped 0.4% to 0.5863 after the US announced 15% tariffs.

Commodities and Bond Market Movements

In commodities and bonds, US 10-year yields rose by 3.6 basis points to 4.396%, while gold increased by 0.2% to $3,297.61. WTI crude oil fell by 0.9% to $68.61, and Bitcoin decreased by 1.1% to $115,260, with Ethereum reaching a week-long low. Investors are awaiting the US jobs report, which could further influence the markets. With stocks under pressure and trade news shaping the market, we are clearly in a risk-off atmosphere. This uncertainty tends to increase volatility, similar to the spikes we saw during the 2018-2019 trade conflicts when the VIX index often rose above 20. Buying VIX call options could be an effective way to hedge against potential equity drops in the weeks ahead. The alerts from Apple and Amazon about tariffs suggest that caution is needed in the tech sector and within the S&P 500. We recall the significant equity drops in 2018 during similar trade tensions, with the S&P 500 falling nearly 7% in May 2019 alone. Therefore, purchasing put options on indices like the SPY or QQQ might be wise to guard against a similar scenario.

Safe Havens and Speculative Positions

In periods of global stress, money tends to flow into the US dollar, and we’re seeing that trend again. Given that speculative trading has favored the dollar for much of the past year, holding long positions in the dollar against tariff-impacted currencies like the NZD looks promising. The Japanese yen also serves as a key safe haven, making long JPY positions appealing. The upcoming US jobs report is a wild card that could quickly change the narrative. Recent reports, like the one from June 2024, which exceeded expectations by adding 272,000 jobs, could pressure the Fed if today’s report is strong. While this might temporarily strengthen the dollar, it could worsen the outlook for stocks already concerned about tighter financial conditions. Gold is having trouble acting as a reliable safe haven due to rising US Treasury yields. As the 10-year yield approaches 4.40%, the opportunity cost of holding non-yielding gold increases, a trend that has dampened gold rallies since 2023. We need to monitor the 100-day moving average; a significant drop below this level might lead to a deeper sell-off. Create your live VT Markets account and start trading now.

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BofA believes that the US non-farm payrolls for July will rise by only 60,000. This shows that job growth is slowing down from previous months. A drop in state and local government jobs is likely contributing to this decrease, especially after the temporary boost seen in June. The unemployment rate is expected to reach 4.2%, suggesting a softening job market. Seasonal factors could also influence the overall numbers, but immediate effects from immigration policy are not expected.

July Report Expectations

The July report may indicate a weakening job market, but it is not likely to lead the Federal Reserve to take action in September. Any Fed decision would probably require softer inflation data as well. We expect the July US jobs report to be much weaker, estimating around +60,000 new jobs. This is a significant decrease from June’s temporary hiring spree, which showed +250,000 jobs added. This slowdown suggests that traders should be cautious about the strength of the US economy. The unemployment rate is projected to rise to 4.2%, a level not seen since late 2023. This further supports the idea that the job market is losing momentum, which could lead to lower US Treasury yields as the markets anticipate a higher chance of future rate cuts. Derivative traders might look at SOFR futures to benefit if the Federal Reserve decides to ease its stance later this year.

Market Implications And Strategies

This expected weakness could create significant market volatility. To prepare for a potential surge in the VIX, traders might consider call options to protect against a steep market decline if job numbers turn out to be weaker than anticipated. Any unexpected data will likely cause a large market movement. For equity markets like the S&P 500, the situation is complicated. While a weak economy can hurt company profits, it may also speed up the timeline for interest rate cuts, which would help stock valuations. Strategies like straddles on the SPY could be useful, enabling traders to profit from large price swings in either direction after the report. A disappointing jobs report usually puts pressure on the US dollar. With the market already expecting a less aggressive Fed, we might see the dollar index (DXY) continue to decline. This could be an ideal time to consider call options on currencies such as the Euro or Japanese Yen against the dollar. However, this jobs report alone isn’t enough to push the Fed to cut rates in September. We are still dealing with the recent core inflation reading from July, which was a stubborn 3.5%, well above the target. The upcoming CPI inflation data will be crucial in shaping the Fed’s next decision. Create your live VT Markets account and start trading now.

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The Nasdaq has lost all gains from earnings, hitting new lows due to hedging activities related to the Non-Farm Payroll (NFP) report and concerns about tariffs. After a brief boost from a tariff pause on April 9, market optimism was limited by trade deal expectations.

Focus Shifts To Interest Rates

Now, all eyes are on the Federal Reserve and interest rates. The Fed recently decided to keep rates steady, but their comments were slightly less favorable than expected, which didn’t initially affect the market. After Fed Chair Powell’s press conference, where he hinted at no rate cuts, the market reacted more negatively. Despite a short rebound from strong earnings by Microsoft and Meta, the market fell again. This drop likely stemmed from hedging activities concerning the NFP and potential tariffs with Canada and Switzerland. Since central banks are not giving clear guidance, market responses will closely track economic data releases. In the long run, the Nasdaq is still on an upward trend, despite recent setbacks. On daily, 4-hour, and 1-hour charts, buyers are expected to support their positions on upward trendlines, while sellers are aiming for lower prices. Today’s market behavior will depend on the US NFP report and ISM Manufacturing PMI. As of August 1st, 2025, the awaited economic data has arrived, and the outlook is hawkish. The Non-Farm Payrolls report showed the economy added 225,000 jobs, surpassing the expected 180,000. Wage growth also surged to 0.4% for the month. This strong labor market data aligns with the Fed’s cautious stance, making a near-term rate cut less likely.

Implications For Derivatives Traders

For derivatives traders, this suggests that the easiest path in the short term is likely downward for the Nasdaq. The market is quickly adjusting expectations for a September rate cut, with CME FedWatch futures now showing less than a 25% likelihood, down from over 50% just a week ago. This sudden change in expectations will likely continue to pressure tech stocks sensitive to growth. We’re seeing a rise in market volatility, with the VIX index exceeding 19 for the first time since June 2025. This indicates that portfolio insurance is getting pricier, and traders might want to consider buying protective puts on indices like the QQQ to guard against further losses. Acting sooner may be wise before volatility rises further. A crucial technical level to keep an eye on is the major upward trendline on the daily chart, which has supported the market since the tariff de-escalation in April. A significant break below this level could signal a deeper market correction. Sellers might see this as a chance to enter new short positions or implement put spreads to target lower price points. However, the longer-term upward trend isn’t necessarily broken. The Fed ultimately leans toward rate cuts, just not yet, and buyers will be looking for opportunities. We can expect dip-buyers to test the trendline again, possibly by selling cash-secured puts at lower strike prices to collect premiums while setting their entry points. We’ve seen similar conditions before, especially during the 2022-2023 rate hike cycle. During that time, resisting a hawkish Fed was an unwise strategy, and market rallies were often sold until the economic data made it clear that the Fed needed to adjust its stance. Today’s solid jobs report indicates we are not yet at that turning point. With the NFP report now out, attention will shift to the next inflation report, the Consumer Price Index (CPI), expected in the second week of August. A high CPI reading would support the job data and could prompt the market to move downward. Thus, any long positions taken in the upcoming days face significant risk ahead of that report. Create your live VT Markets account and start trading now.

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Trump has criticized Federal Reserve Chair Jerome Powell, calling him “Jerome ‘Too Late’ Powell” and a “stubborn MORON.” He is pushing for a big drop in interest rates. Trump believes that if Powell doesn’t act, the board should intervene. This criticism is part of a pattern. The market doesn’t seem to react much to Trump’s comments unless he threatens to remove Powell, which isn’t likely at the moment. There’s also speculation that Trump’s remarks may be influenced by early access to important economic data like the jobs report.

Political Risk and Market Volatility

Trump’s ongoing public criticism of the Fed chair adds a political risk factor to the market. While people have become less sensitive to this daily noise, it prevents complacency and keeps volatility expectations high. This suggests that having market insurance, such as VIX call options, is a wise strategy for the coming weeks. The Federal Reserve finds itself caught between political pressure and its data-driven goals, especially with last month’s core inflation still at a stubborn 3.4%. The Fed’s aggressive rate hikes from 2022 to 2023 aimed to tackle this persistent inflation. This ongoing conflict creates a shaky balance that traders can take advantage of. These comments matter more because the July Non-Farm Payrolls report comes out this morning. Last month’s report was surprisingly strong, with over 270,000 jobs added, which helped the Fed defend its hawkish stance. If today’s jobs report is weak, there will be stronger calls for rate cuts, making short-term options on the SPX or NDX a great opportunity for gains.

Market Responses and Trading Strategies

A similar situation happened in 2018-2019 when constant pressure on the Fed led to sharp spikes in the VIX, often exceeding 20. History shows that even empty threats can cause sudden market shifts. For this reason, buying inexpensive out-of-the-money puts on equity indices can serve as a cost-effective cushion against sharp market downturns. Interest rate derivatives are the most responsive area to this uncertainty. Looking at SOFR futures pricing, the market has slightly raised the chances of a rate cut by year-end, indicating that these statements are being taken seriously. A straddle on futures for the September or December Fed meetings is a smart way to trade based on the outcome, allowing profits from significant moves whether the Fed relents or stands firm. Create your live VT Markets account and start trading now.

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Market reactions depend on both the range of forecasts and the distribution of expectations. A surprise occurs when actual data differs from what was anticipated. Even if the data is within the expected range, if it is closer to the lower end, it can still create a surprise.

Non-Farm Payrolls Estimates

Non-Farm Payrolls estimates vary from 0K to 176K, with most predictions ranging from 75K to 130K, and a consensus at 110K. The unemployment rate consensus is at 4.2%, with estimates between 4.0% and 4.3%. For Average Hourly Earnings year-on-year, the consensus stands at 3.8%, with forecasts between 3.4% and 3.9%. Monthly earnings are expected to have a consensus of 0.3%, with estimates ranging from 0.2% to 0.4%. The Average Weekly Hours forecast is centered at 34.2 hours, with some estimates going up to 34.3 hours. The Federal Reserve Chair noted the unemployment rate as a key focus area, indicating its strong influence on market assessments. It’s crucial to understand that how forecasts are grouped matters more than just the consensus number itself. The market’s true expectation for Non-Farm Payrolls clusters between 75K and 130K. Thus, a reading below 75K would be a significant negative surprise, likely leading to a big market reaction.

Analyst Expectations and Market Reactions

The unemployment rate is the key indicator to monitor, as emphasized by Fed Chair Powell. A substantial 83% of analysts predict the rate will remain at 4.2%. If the rate were to rise to 4.3%, it would likely shock the market, causing a sharp sell-off in stocks and a rally in bonds due to increased odds of a rate cut. Following two weak job reports in late 2024, the Fed shifted towards easier policy. With the market currently expecting decent results, any hint of weakness could lead to a major price movement. This is reflected in the options market, where implied volatility for the S&P 500 is declining, indicating some complacency. Wage growth is another significant factor, with the consensus at 3.8% year-over-year, marking the slowest wage growth since early 2024. A number below this, like 3.7% or less, would strengthen the argument for controlled inflation, giving the Fed more flexibility. Given these circumstances, derivative traders should prepare for a larger reaction to a weak report compared to a strong one. Buying out-of-the-money puts on major indices or calls on Treasury bond futures could be a wise move. A payroll number below 75K combined with a 4.3% unemployment rate would create a highly impactful situation. We have observed the NASDAQ 100 move over 2% due to similar data points multiple times in the 2023-2024 period. Traders should have strategies ready for this type of downside risk. Create your live VT Markets account and start trading now.

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The Eurozone’s preliminary Consumer Price Index (CPI) for July shows a yearly increase of 2.0%. This is the same as the previous month and slightly higher than the expected 1.9%. At the same time, the Core CPI, which excludes unstable items like food and energy, increased by 2.4%. This figure is unchanged from June and above the forecasted 2.3%. These numbers indicate steady inflation in the Eurozone, according to Eurostat’s latest data released on August 1, 2025. The Core CPI remaining at 2.4% supports economic evaluations ahead of the European Central Bank’s September meeting.

Implications For The European Central Bank

The latest inflation data for July shows core prices are stable, remaining at 2.4%. This suggests that the European Central Bank may keep interest rates unchanged at their September meeting. The steady inflation situation eases any immediate need for them to make changes. The ECB has maintained its main interest rate at 3.50% since its last increase in March 2025. This new data backs their cautious approach, especially since recent German ZEW Economic Sentiment figures revealed a surprising drop in confidence. With Europe’s economic engine slowing down, the central bank has another reason to pause. For those trading interest rate derivatives, this means the likelihood of a rate hike in the near future is very low. We can expect short-term interest rate futures to reflect this stability, making bets on higher rates riskier. It may be a good time to explore strategies that profit from a lack of changes, as the situation is likely to remain clear until September.

Impact On The Markets

This stability should also keep market volatility down. The VSTOXX, a key indicator of Eurozone stock market volatility, has declined, dropping from over 20 in spring 2025 to around 16 last week. Selling options to gain premium could be a suitable strategy as we expect a quiet period. Regarding the euro, the ECB’s pause puts it in a stable position against other currencies. For instance, recent US inflation data also showed a slowdown, which eases pressure on the Federal Reserve to increase rates further. This suggests that the EUR/USD pair may trade within a narrow range in the coming weeks, providing opportunities for range-bound derivative strategies. Create your live VT Markets account and start trading now.

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European stocks had a rough start to the month due to concerns about tariffs. The overall market felt cautious, especially after Apple and Amazon reported their earnings, highlighting the impact of tariffs. S&P 500 futures fell by 1% after struggling to hold new record highs. Nasdaq futures dropped by 1.1%, and Dow futures were down by 0.9%. In Europe, both the DAX and CAC 40 declined by 1.7%, wiping out July gains for French stocks.

US Jobs Report

The upcoming US jobs report is generating anticipation. Strong numbers could reinforce the Federal Reserve’s cautious stance. This might lead to further declines in equity markets before the weekend. Currently, Fed funds futures indicate about a 39% chance of a rate cut in September, suggesting potential market shifts ahead. The market mood feels similar to the trade war jitters of 2019. However, the current anxiety stems from rising geopolitical tensions and stubbornly high inflation, not just tariff threats. This creates a tough climate for equities, as major indices in Europe and the US enter August on a weaker note. Fear is growing in the market, shown by the VIX index, which recently rose from its summer lows near 12 to over 18 this week. This increase in implied volatility makes options more expensive, leading traders with long stock positions to consider protective puts as a costly, yet possibly necessary strategy. The sharp rise indicates increasing uncertainty as we head into autumn. Everyone is watching today’s US jobs report for July. Economists predict around 190,000 new jobs, which would usually be seen as good news. However, a strong number today could be viewed negatively for stocks since it gives the Federal Reserve more reasons to postpone any potential interest rate cuts.

Futures Market Outlook

This situation is reflected in the futures market. The chances of a Fed rate cut by December have dipped to just under 50% from over 70% a few weeks ago. This change suggests traders might consider selling call options on interest rate futures, anticipating that rates will remain higher for longer. The recent Core PCE inflation reading for June, at a steady 2.9%, is the main reason for this shift in outlook. Create your live VT Markets account and start trading now.

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The UK’s final manufacturing Purchasing Managers’ Index (PMI) for July was 48.0, a slight change from the initial reading of 48.2. This is an improvement from June’s 47.7, showing a slight easing in the manufacturing sector’s decline. In July, jobs in the sector fell at a quicker pace than in previous months. Input costs and selling price inflation remained mostly stable. Although factory output saw a small increase and future output expectations are at their highest since February, challenges in both domestic and international markets persist.

Domestic And International Challenges

On the home front, rising costs, including higher minimum wages and employer National Insurance Contributions, continue to make people hesitant to spend. Internationally, geopolitical tensions and trade uncertainties add to the hurdles faced by UK manufacturers. The sharp drop in employment rates is a significant concern, with current job cuts resembling those experienced during the pandemic in 2020. As the Autumn budget approaches, manufacturers are expected to focus on stability, hoping for fiscal measures that could support recovery. The UK manufacturing sector shows signs of slowdown, with a PMI of 48.0 for July. This marks the seventh consecutive month of readings below 50.0, which signifies contraction. While inflation remains stable at 2.8% according to the latest Consumer Price Index (CPI), sluggish activity will increase pressure on the Bank of England.

Impact On Currency And Stocks

This economic weakness is likely to push down the British Pound in the coming weeks. The domestic economy appears fragile, with companies reluctant to spend and a weak export market. Similar weak data in late 2023 led to a notable drop in GBP/USD, suggesting traders might be looking to sell the pound against the dollar. The report also indicates challenges for UK-focused stocks, making options to bet against the FTSE 250 index appealing. Since the FTSE 250 is more vulnerable to the domestic economy, it has underperformed the FTSE 100 by nearly 4% in 2025. With job cuts accelerating at the fastest rate since the pandemic lockdowns of 2020, corporate earnings for many domestic firms are jeopardized. Due to the disappointing PMI data and recent GDP figures showing only 0.1% growth in the second quarter, interest rate markets may begin to price in a rate cut more aggressively. Although the Bank of England has kept rates steady, this report raises the likelihood of leaning towards easing policy later this year. Traders could prepare for this by purchasing short-term interest rate futures, which would increase in value if the central bank hints at a cut. Looking forward, we anticipate a cautious period leading up to the Autumn budget, creating uncertainty. This situation suggests that implied volatility for UK assets may start to rise. Traders should think about strategies that benefit from this, such as buying straddles on key indices or currency pairs to protect against major policy surprises. Create your live VT Markets account and start trading now.

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The 39% tariff in the United States does not apply to pharmaceuticals exported from Switzerland. Pharmaceuticals are Switzerland’s top export, accounting for about 40% of total export value, with 60% of these drugs going to the US. This tariff exemption is significant due to the importance of pharmaceuticals in Switzerland’s economy. Malaysia has also confirmed that its 19% tariff will not include pharmaceuticals and semiconductors. There has been no request or agreement from the US regarding Malaysian rare earth supplies during tariff discussions. Malaysia is the second-largest exporter of rare earth minerals to the US, following China, and it holds about 13% of the market, compared to the rest of the world’s 17%.

Trade Tensions Easing

Recent trade tensions seem to be calming down, reducing the risk of a major crisis. The VIX, which had been close to 20 in late July 2025, is expected to drop. Traders might benefit from selling volatility now that the exemptions for Switzerland and Malaysia have removed a lot of market uncertainty. The Swiss franc is likely to strengthen against the dollar. Since pharmaceuticals make up a large part of Swiss exports to the US, this tariff exemption offers significant economic relief. In late 2023, the CHF rallied sharply when trade fears were proven unfounded. Current trends suggest we may see a similar rise now. This news particularly reduces risks in the pharmaceutical sector, which has been underperforming. The Health Care Select Sector SPDR Fund (XLV) has lagged behind the S&P 500 by nearly 4% in 2025, and this could be the trigger for it to catch up. We anticipate increased activity in call options for major pharmaceutical and healthcare ETFs in the upcoming weeks.

Boost for Semiconductor Sector

The exemption for Malaysian semiconductors also supports the tech sector. The global chip supply chain, which experienced a sales drop per the latest June 2025 industry report, gains stability from this development. This news strengthens the case for investing in semiconductor ETFs like the SMH, as a major supply chain risk has been addressed. However, the situation with rare earths brings a different challenge. Malaysia’s statement about having no agreement with the US means the supply issue for minerals outside China is still unclear. This uncertainty reminds us of the price spikes in 2019, which could lead to volatility for miners, making options on an ETF like REMX an intriguing option for future developments. Create your live VT Markets account and start trading now.

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