Trump visited the Federal Reserve construction site to push for lower interest rates. He pointed out that costs increased from $2.5 billion to $3.1 billion, but Powell explained that Trump included a third renovated building in his figures. When asked what would change his opinion of Powell, Trump joked that he would be pleased if interest rates were reduced. He mentioned that firing Powell isn’t necessary and described it as a major decision.

Impact On Market Volatility

We think Trump’s recent statement reduces a major risk for the market. This should lead to lower implied volatility, making it more appealing to sell options. For example, the Cboe Volatility Index (VIX), currently around 14, could drop further as political uncertainty decreases. The ongoing push for lower rates supports the current market trend. The CME FedWatch Tool shows an over 85% chance of at least one 25-basis-point cut by the end of the year. While this situation doesn’t alter our views, it keeps the focus on upcoming decisions from the Federal Open Market Committee. Historically, the central bank focuses on economic data rather than political debates. The latest Core PCE Price Index shows inflation at 2.8%, still above the target. Any actions by the current chair will be based on data, not politics. Therefore, we’ll shape our positions based on upcoming reports about inflation and employment, rather than political events.

Strategic Investment Positioning

Our strategy will focus on benefiting from a steady, supportive policy environment. This might include selling out-of-the-money puts on equity indices to earn premium, taking advantage of lower volatility and expectations for supportive monetary policy. With this political risk now removed, the need for costly downside protection has decreased. Create your live VT Markets account and start trading now.

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In June, new single-family home inventory in the U.S. rose to 9.8 months. This is the highest level since October 2007. In the past, such high inventory levels have often signaled a recession about five out of six times. When supply exceeds six months, it’s usually a sign of a buyer’s market, prompting builders to lower prices. New home sales in June grew by 0.6%, but this was below expectations and marked a 6.6% decrease compared to last year. The median price of new homes dropped by 2.9% to $401,800, suggesting that builders are discounting prices to attract buyers.

Housing Market Decline

Existing-home sales also decreased in June, indicating a slowing housing market. Rising mortgage rates near 7% and economic uncertainty are keeping many potential buyers from purchasing homes, leading to high inventory levels. Given the unusual nature of current new home supply levels, we believe this presents a good opportunity for traders to prepare for a decline in the housing market and a broader economic slowdown. We are taking bearish positions on homebuilder stocks by buying put options on the SPDR S&P Homebuilders ETF (XHB). This aligns with reports from the National Association of Realtors, showing existing-home sales fell for the fifth straight month in June, confirming the downward trend. Historical data suggests that similar supply levels have often preceded recessions. Therefore, we plan to hedge against broader market volatility by purchasing long-dated call options on the CBOE Volatility Index (VIX), which is currently low at around 15. In the 2008 housing-led recession, the VIX soared above 80, indicating that current options are priced favorably compared to potential risks ahead.

Building Defensive Positions

This data may indicate a move toward safe investments, leading us to invest in defensive sectors. We are buying call options on consumer staples (XLP) and utilities (XLU) ETFs, as these sectors usually do better during economic downturns. This is supported by the latest Consumer Price Index data, which shows that inflation remains persistent, continuing to impact household budgets and spending. The fall in median home prices signals that builder profit margins are under pressure, a trend we expect to worsen. Recent earnings reports from major builders highlight increased sales incentives and higher cancellation rates, supporting our bearish outlook. This weakness in a crucial economic sector reinforces a defensive strategy for our entire portfolio. Create your live VT Markets account and start trading now.

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China’s Country Garden has struck a deal to restructure its debts with bank creditors, which includes $178 million in compensation related to seized assets. This agreement clears a significant obstacle in their debt talks and focuses attention on getting full bank approval before a winding-up hearing set for August 11. The company has not commented on this issue.

Country Garden’s Concession

Country Garden’s agreement eases fears of an immediate default. Bond spreads may tighten slightly, and Asian real estate stocks might see modest gains as confidence grows before the upcoming court date. We view the developer’s deal with creditors as a way to reduce the risk of a chaotic collapse before the court hearing. This progress should provide a fragile support for the sector’s stocks for now. Eyes will be on the winding-up hearing, now rescheduled for July 29, 2024. While this news may offer short-term relief, we remain cautious about the ongoing issues in the broader sector. Data from May shows that property investment in China dropped by 10.1% compared to last year, indicating that problems like weak demand and oversupply still exist. This suggests that any rise in stock prices due to one company’s restructuring might be limited.

Investment Strategy Response

In light of this, we think traders should consider selling near-term, out-of-the-money puts on ETFs that track Chinese property stocks, such as the Hang Seng Mainland Properties Index. This approach allows for earning premiums from higher volatility, betting that the company’s progress keeps the worst-case scenario at bay before the late July hearing. It’s a short-term strategy based on reduced fear, not a long-term bullish investment. Looking back, the Evergrande crisis showed us that initial restructuring agreements are often just the first step in a long and unpredictable journey. Therefore, we recommend using any resulting strength in the sector to buy longer-dated, cheaper puts. This offers protection against the ongoing economic struggles the market faces. This two-part options strategy aims to take advantage of a brief period of optimism while protecting against the structural decline in the sector. The Hang Seng property index is still down over 20% this year, reinforcing our belief that these are short-term opportunities within a larger downtrend. Create your live VT Markets account and start trading now.

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The USD/JPY exchange rate continues to rise, now surpassing 147.40. There haven’t been any new factors to change this trend recently. In July, Tokyo’s Consumer Price Index (CPI) was 2.9%, which is a bit lower than the expected 3%. Nevertheless, inflation in Tokyo remains above the Bank of Japan’s target. This could lead to interest rate hikes by late 2025 or early 2026.

Japan’s Economic Indicators

Japan’s Services Producer Price Index for June increased by 3.2% compared to last year, which matched predictions. While this data does not oppose possible rate hikes from the Bank of Japan, the yen has weakened during trading. The Bank of Japan will meet next week, but there’s no expectation for a rate hike this year. Sheridan’s insights mark an important point for traders. The yen’s weakness stems not from immediate Japanese data but from the significant interest rate gap with the United States. The Bank of Japan’s rate is around 0.1%, while the U.S. Federal Reserve maintains a rate between 5.25% and 5.50%. This situation encourages traders to sell yen for dollars.

Trader Strategies and Intervention Risk

This trend is likely to continue, as Fed funds futures suggest over a 90% chance that rates will stay the same through the next meeting. This strengthens the dollar and indicates that the USD/JPY exchange rate will likely keep rising. Thus, we recommend strategies that benefit from this upward trend, such as buying USD/JPY call options. However, we need to stay alert for possible government intervention as the USD/JPY climbs. In 2022, Japan’s Ministry of Finance intervened by purchasing yen when the dollar rose above 150, establishing a strong line of resistance. Because of this, the 150-152 range is crucial, where the upward trend could suddenly change. Given this risk of intervention, traders might consider using option spreads, like a call spread, to limit potential gains while reducing trade costs. This strategy enables profits from an increase towards 150 while guarding against a rapid decline if officials intervene. Implied volatility for USD/JPY has already risen over 8.5%, making these risk-defined strategies more appealing. It’s also important to note that shorting the yen is a popular strategy right now. Recent data from the Commodity Futures Trading Commission shows that large speculators hold a net short position of over 115,000 contracts, close to multi-year highs. In a crowded market, any unexpected hawkish move from the Bank of Japan or effective intervention could trigger a swift short squeeze, leading to a rapid strengthening of the yen. Create your live VT Markets account and start trading now.

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Intel is cutting more than 15,000 jobs, representing about 15% of its global workforce. This is part of a larger plan to reduce its workforce by 22%, bringing it down to around 75,000 employees. The company is also scaling back its manufacturing efforts. It has canceled plans to build new chip factories in Germany and Poland. Additionally, Intel will close an assembly site in Costa Rica and merge operations in Vietnam and Malaysia. The timeline for opening Intel’s factories in Ohio, originally set for 2025 and then pushed to 2030, is now unclear. Intel has warned that it might stop advanced chip manufacturing in the next four years. This decision hinges on whether it can attract enough external clients for its Intel Foundry business. CEO Lip-Bu Tan noted that the company made “unwise and excessive” investments in capacity, which has left its factory setup fragmented. This announcement signals a bearish outlook for the stock in the coming weeks. The deep job cuts, canceled factories, and potential exit from its core business pose significant risks. Traders should consider strategies that profit from a falling share price, specifically using put options. The current strategic uncertainty is increasing implied volatility, which has risen above 45% during recent earnings calls and major announcements. This spike makes options pricier but offers rewards to traders who can predict large price shifts. We recommend taking advantage of this high volatility, as it shows the market is expecting significant movement. The situation is more concerning when compared to rivals like Nvidia, which recently reported over 260% revenue growth year-over-year, largely due to its strong position in the AI sector. This contrast highlights a market shift that is putting Intel at a disadvantage. Tan’s acknowledgment of “unwise and excessive” investments further shows the company is struggling to keep up. This scenario echoes the challenging transitions of other tech giants, such as IBM in the 1990s, which took years of restructuring before establishing a stable business model. History suggests that any turnaround for Intel will be a long process with ups and downs. For traders, this means short-term rallies should be approached with caution, potentially creating opportunities for new bearish positions. Given the high option costs, we recommend traders consider using spreads to manage risk and reduce entry costs. For example, a bear put spread allows traders to profit from a moderate decline while limiting the initial premium spent. This method is a more capital-efficient way to express a bearish outlook in today’s high-volatility environment.

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The Chinese yuan has recently reached an eight-month high, but it may soon weaken again. Analysts are concerned because of ongoing economic problems and the possibility of a stronger U.S. dollar. While the currency has moved out of a narrow trading range, issues like weak domestic demand and the impact of increased U.S. tariffs remain. Even with a trade agreement, these factors could hurt the yuan’s value.

Predictions On Yuan Value

Standard Chartered’s Becky Liu expects the yuan to lose value by the end of the year. She cites decreased support from GDP growth, exports, and the current account as reasons for this decline. Ryan Lam from Shanghai Commercial Bank shares this view. He notes that optimism about economic reforms is fading and predicts the yuan will drop to 7.20 per dollar due to the ongoing strength of the U.S. economy. Given this outlook, derivative traders should prepare for potential yuan weakness against the dollar. The recent rise seems to be a short-term bounce rather than a new upward trend. Therefore, any short-term strength in the yuan could be a chance to adopt bearish positions. Liu’s worries about economic challenges are reinforced by recent data. For example, China’s official manufacturing PMI for May 2024 unexpectedly fell to 49.5, showing a decline in factory activity and highlighting weak domestic demand. This underlying weakness makes it hard for the yuan to maintain its recent gains.

Supporting Factors For A Higher Exchange Rate

Lam’s forecast is backed by the ongoing strength of the U.S. economy and a hawkish Federal Reserve. Recent data shows persistent U.S. inflation, leading to delayed expectations for Fed rate cuts, which keeps the dollar appealing. This policy difference between a potentially easing China and a strong U.S. is likely to drive the USD/CNY exchange rate higher. To take advantage of this, we recommend buying U.S. dollar call options against the yuan with strike prices near 7.20. This strategy allows participation in potential gains while keeping risks defined and limited. The options market offers a way to act on this view without committing to an immediate spot position. A return to the 7.20 level is realistic based on the currency’s recent history. The USD/CNY pair frequently traded above 7.25 and even reached 7.30 in the second half of 2023. This history indicates that moving back to 7.20 would merely revert to a previously established trading zone. Create your live VT Markets account and start trading now.

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The People’s Bank of China (PBOC) sets the yuan’s daily midpoint and manages a floating exchange rate. This means the yuan can move within a +/- 2% range of the reference rate. Today, the reference rate is 7.1419, down from the previous close of 7.1557. The PBOC has injected 789.3 billion yuan into the market through seven-day reverse repos at a rate of 1.40%. With 187.5 billion yuan maturing today, this creates a net injection of 601.8 billion yuan into the financial system.

Central Bank Actions and Yuan Stability

The central bank’s recent actions indicate a desire to slow the yuan’s decline against the dollar. The stronger-than-expected fixing shows its commitment to defend the currency, which temporarily makes it more costly to bet against the yuan. That said, economic data is mixed. China’s industrial output grew by 5.6% year-over-year in May 2024, but retail sales missed forecasts, and the property sector is struggling, indicating ongoing weaknesses. These factors suggest the yuan will face more downward pressure. The tension between government action and economic realities may lead to increased currency volatility in the coming weeks. We think buying option volatility, like a USD/CNH straddle, could be a smart strategy since it profits from significant price changes in either direction, which seem likely.

Strategies in Current Economic Climate

For those with a specific outlook, we advise against taking strong bearish positions due to the central bank’s firm stance. Instead, consider using derivatives that limit risk, like buying USD call spreads or CNH put spreads. This allows you to prepare for potential yuan weakness while minimizing losses from any strong fixing. Historically, sustained interventions, such as those in 2018, tend to slow trends driven by fundamental differences with the U.S. economy but don’t fully reverse them. The large liquidity injection with the fixing hints at underlying stress that authorities want to address. Therefore, use any temporary strength from policy actions as an opportunity to enter bearish positions at better prices. This defense of the currency may provide short-term support for Chinese stocks, which generally benefit from a stable exchange rate. You could consider selling out-of-the-money call options on indices like the FTSE China A50. This strategy allows you to collect premiums based on the view that any stock market rally will be limited by ongoing economic challenges. Create your live VT Markets account and start trading now.

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Corporate investment in artificial intelligence (AI) is paying off, with companies that adopt AI early seeing better earnings and market returns. Morgan Stanley’s AI Adopter Survey shows that AI integration is speeding up, especially in finance, real estate, and consumer goods. Businesses using AI are enjoying improved earnings and stock performance. In financial services, the adoption rate is climbing quickly. For example, the use of AI in insurance companies has jumped from 48% to 71% since January 2025, and it’s at 73% across the financial sector. These companies are applying AI to enhance customer service and improve compliance.

Consumer Sector Growth in Artificial Intelligence

The consumer sector is also embracing AI. In durable goods and apparel, AI use has increased from 20% to 44%, mainly due to better supply chain management. Major retailers like Walmart and Target are using AI to optimize inventory. In real estate, the use of AI among Real Estate Investment Trusts (REITs) has risen to 32% since the start of the year. Automation is streamlining tasks in leasing, property management, and brokerage services. Analysts point out that companies with strong AI integration are seeing better earnings and market performance, and this gap between AI leaders and others is widening. Morgan Stanley expects this trend to continue. The growing divide between AI adopters and those who lag behind offers a clear opportunity for traders. The analysts note a marked difference in performance, suggesting that options can be used to capitalize on this divergence. Traders can create strategies that benefit from the success of leaders and the struggles of laggards.

Trading Strategies for Artificial Intelligence Adopters

This trend reflects the broader market, where a few tech giants have driven over 70% of the S&P 500’s gains this year. Unlike the speculative dot-com era, this growth is backed by real earnings from AI use. This trend makes buying call options on key AI players and their primary customers a solid strategy. In the financial sector, there are chances for pair trades focused on AI adoption. For instance, one might buy calls on a major player like JPMorgan, which has a $15 billion tech budget heavily invested in AI, while also buying puts on smaller regional banks that lack such resources. The rising adoption in insurance indicates opportunities for finding leaders in that area as well. In the consumer sector, the difference is evident. Walmart recently hit all-time highs, benefiting from tech-driven supply chain efficiencies. Strategies that take advantage of this leader’s strength, like selling put spreads, could be effective while the stock continues to rise. This stands in contrast to competitors still figuring out their tech integration. We also expect implied volatility to increase for lagging firms as their earnings potential gets scrutinized. Traders might consider buying straddles or strangles on companies in affected areas like real estate services that still lack a clear AI strategy. This could allow them to profit from significant stock price changes as the market reacts to inaction. Create your live VT Markets account and start trading now.

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In July, Tokyo’s core inflation exceeded the Bank of Japan’s 2% target. This raises the likelihood of a rate hike either later this year or early next year. The Core Consumer Price Index (CPI), which excludes fresh food, rose by 2.9% compared to the previous year in July. This was slightly below the expected 3.0% and down from June’s 3.1%.

Core Core Inflation Rate

The core-core inflation rate, which removes both fresh food and fuel prices, remained steady at 3.1% year-on-year. The Bank of Japan closely watches this measure to understand domestic price trends. This data will impact the Bank of Japan’s policy meeting on July 30–31. While there may be expectations for an increase in the inflation forecast, it is likely that interest rates will stay where they are for now. According to analysis from Sheridan, the ongoing inflation signals traders to prepare for changes in the near future. The Bank of Japan may adopt a more hawkish approach, which changes the risk outlook for yen-denominated assets. Traders should be ready for potential policy changes that could happen sooner than expected.

Impact On The Yen And Bonds

The yen is notably weak, with the USD/JPY exchange rate recently reaching 34-year highs around 160. Given the inflation situation, traders might consider buying call options on the yen. This strategy allows for profit if the central bank adopts a more aggressive tone in its July meeting, while also limiting downside risk. The expectation of tighter monetary policy will likely affect Japanese government bonds, indicating that yields may rise from their current levels. National core inflation was already at 2.8% in June, suggesting ongoing price pressures. Using interest rate futures could be an effective way to bet on rising bond yields ahead of the Bank of Japan’s inflation forecast update. A more hawkish stance could pose challenges for stocks, making the Nikkei 225 index potentially vulnerable. We expect increased market volatility around policy decision dates. Buying put options on the Nikkei 225 can be a strategic hedge or a direct bet on a market drop due to higher borrowing costs. We also need to remember how the market reacted after the historic rate hike in March 2024, when the yen unexpectedly weakened. This occurred because the policy guidance was perceived as too cautious, fitting the “buy the rumor, sell the fact” pattern. Therefore, any derivative positions should be prepared to handle possible short-term volatility if the Bank of Japan’s message falls short of hawkish expectations. Create your live VT Markets account and start trading now.

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The People’s Bank of China (PBOC) determines the daily midpoint for the yuan, or renminbi (RMB), using a managed floating exchange rate system. This system allows the yuan’s value to change within a specific range, or “band,” of +/- 2% around a central reference rate. Every morning, the PBOC sets a midpoint for the yuan against a basket of currencies, primarily focusing on the US dollar. While establishing this midpoint, the central bank considers market supply and demand, key economic indicators, and fluctuations in the international currency market.

How the Trading Band Works

The PBOC allows the yuan to fluctuate within a set trading band, which means it can rise or fall by a maximum of 2% from the midpoint each trading day. The central bank can adjust this range depending on current economic conditions and policy goals. If the yuan’s value gets close to the limits of this trading band or experiences too much volatility, the PBOC might step in. By buying or selling the yuan, the central bank works to stabilize its value, ensuring changes are controlled and gradual. From the central bank’s approach, we should see the daily reference rate as a key indicator for short-term trends. The pattern of setting the midpoint stronger than market expectations shows a clear intent to prevent rapid depreciation of the yuan. This guidance makes it less likely to see significant bets on a much weaker currency soon.

Implied Volatility and Trading Strategies

Given the managed nature of the currency and its defined trading band, implied volatility is likely to stay low. Currently, the one-month implied volatility for USD/CNH options is around 4.2%. This presents opportunities for strategies that can benefit from low and decreasing volatility, such as selling option premiums with structures like short straddles or strangles. However, we need to balance this with economic data, which indicates underlying weakness and could pressure the currency down. For example, China’s exports dropped 7.5% year-over-year in May, and youth unemployment recently surpassed 20%, the highest ever. These numbers show that the central bank is working hard to counteract market forces, creating challenges for traders. With the defined +/- 2% band, we believe range-bound strategies are particularly effective. We can set up trades like iron condors with strike prices near the edges of this band, taking advantage of the high likelihood that the central bank will intervene to maintain the currency within this stable daily range. This allows us to earn premium while authorities uphold stability. We should also keep in mind historical events, like the unexpected devaluation in August 2015, which caused a dramatic increase in volatility. While we expect stability to continue, this past event serves as a warning of potential risks. Therefore, we should apply strict risk management to any positions we take to prepare for possible sudden changes in policy. Create your live VT Markets account and start trading now.

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