Insights 
VT 
OPEC+ panel likely to keep oil policy unchanged, sources say
A Reuters report says that the OPEC+ panel will likely keep its current oil policy during the upcoming review on Monday. This decision comes as they continue to assess the global oil market.
OPEC+ is carefully watching how supply and demand are changing to maintain market stability. The upcoming meeting will allow them to evaluate how their policy affects oil prices and production.
In June, US durable goods orders fell by 9.3% due to large drops in transportation and revisions.
In June, US durable goods orders dropped by 9.3%. This decline was not as bad as the expected 10.8% decrease. May had seen a big jump of 16.5%, the highest since July 2014. The transportation sector saw the largest impact, falling by 22.4% or $32.6 billion. Without transportation, orders actually grew by 0.2%, slightly lower than the revised 0.6% from May.
When excluding defense items, orders fell by 9.4%, down from a 15.7% rise in May, which was previously adjusted from 15.5%. Non-defense capital goods, excluding aircraft, decreased by 0.7%, compared to a 2.0% increase in May. Future factory orders will refine these preliminary numbers for June.
June Decline and Market Reaction
June’s decline marked the steepest drop since April 2020. One reason for this volatility could be President Trump’s focus on selling big-ticket items like defense equipment and aircraft to improve trade figures. Market reactions are showing slight gains: the Dow is expected to open 68 points higher, while the S&P index is anticipated to rise by 10.15 points and NASDAQ by 8.63 points. The market’s rise can be attributed to the fact that the -9.3% decline in durable goods orders was less severe than the predicted -10.8% drop, offering traders some relief. The key takeaway is that the market was prepared for even worse news. Beyond the headline number, the 0.2% increase in orders excluding transportation is particularly noteworthy. This indicates that businesses are still investing in equipment and machinery, which is a positive sign. It’s crucial to focus on this steady spending rather than the more volatile overall figures. This resilience matches other recent data. The Institute for Supply Management’s (ISM) latest manufacturing index showed improvement in the “new orders” component, moving from 45.6 to 46, suggesting that the worst of the slowdown may be in the past and that core business spending is stabilizing.Factors Driving Swings and Trading Strategies
The major fluctuations are mainly due to transportation and defense, as Michalowski pointed out. The 22.4% drop in transportation orders significantly impacted the overall numbers. We should expect this trend to continue, leading to major market volatility each month with the durable goods report. Such a large drop is notable, harkening back to the April 2020 shutdowns. The surge the previous month was the largest since 2014, highlighting how extreme these changes have become. Politically motivated sales of aircraft and defense goods could lead to these unpredictable monthly swings being the norm. For trading strategies, this suggests using options to navigate the expected fluctuations. It would be wise to consider buying volatility or employing spreads on industrial sector ETFs. This approach can help manage or profit from sharp market moves. The contrast between the erratic overall figures and the steadier core data presents opportunities for traders who can look deeper. Create your live VT Markets account and start trading now.Nagel believes that keeping rates steady is appropriate for the current economic climate, given the uncertainty and improved forecasts.
The European Central Bank (ECB) is likely to keep interest rates stable after making eight cuts. The economic outlook has shown a bit of improvement since June.
This cautious approach seems wise given the current uncertainties. Market predictions indicate a 50/50 chance of another rate cut by December.
Policymaker Comments Indicate a Pause
We interpret the comments from policymakers as a clear sign that the cycle of rate cuts is likely paused for now. This pause means that traders expecting significant rate cuts may need to rethink their strategies. The focus has shifted from how many more cuts there will be to how long rates will stay the same. Recent data supports this stance. Eurozone inflation unexpectedly rose to 2.6% in May, up from 2.4% in April. Additionally, strong wage growth of 4.7% in the first quarter gives the central bank a solid reason to wait. This persistent inflation makes another quick cut unlikely. Given varying expectations for moves by the end of the year, we expect increased volatility in euro-denominated assets. Traders may want to consider buying straddles or strangles on indexes like the Euro Stoxx 50. These strategies can benefit from significant market moves in either direction.Adjusting Positions in Interest Rate Swaps
We recommend adjusting positions in interest rate swaps to reflect a longer period of higher rates than previously thought. The forward curve may still indicate a higher chance of rate cuts than what Mr. Nagel has suggested, and we believe it’s mispriced. Taking fixed positions on swaps with a 6-month to 1-year term could be an effective way to prepare for this pause in policy. Historically, policy pauses during uncertain economic times have led to unstable markets until clearer trends emerge. With the ECB appearing more focused on inflation compared to the US Federal Reserve, we see potential for the Euro to gain strength. Using call options on the EUR/USD currency pair is a cost-effective way to bet on this policy divergence. Create your live VT Markets account and start trading now.The USD strengthens early today due to upcoming durable goods orders and market expectations
The USD is stronger today ahead of the durable goods orders report. Expectations are set at -10.8% after last month’s significant jump of 16.4%. Non-Defense Capital Goods, excluding aircraft, is anticipated to rise by 0.2%, down from 1.7% last month.
After the ECB decided to keep rates unchanged, ECB’s Villeroy pointed out that a stronger Euro has a disinflationary effect. Similarly, ECB’s Rehn emphasized taking a meeting-by-meeting approach to monetary policy due to concerns about economic growth. ECB’s Kazaks recommended maintaining current interest rates to let recent easing measures take effect.
Economic Projections
The ECB survey has lowered inflation forecasts for 2025 and 2026 to 2.0% and 1.8%, respectively. GDP growth expectations were slightly adjusted, with 2025 projected at 1.1% and 2026 also at 1.1%. In the UK, June retail sales increased by 0.9% month-over-month, though this is below the expected 1.2%. Year-over-year sales rose by 1.7%. Japan’s BoJ may consider a rate hike before the year ends, as upcoming data will guide their decision. Germany’s July Ifo business climate index improved to 88.6. In the US market, stock futures are steady, while bond yields are mostly unchanged or slightly higher. Oil prices are slightly up, gold prices have dropped, and Bitcoin has fluctuated, decreasing to $116,502. Recent comments from ECB officials suggest a cautious approach ahead. Both Villeroy and Rehn are warning about growth risks, showing they are not rushing to change policy. This dovish stance, along with lowered inflation expectations from the Survey of Professional Forecasters, indicates the Euro may weaken in the coming weeks.Currency Strategies
This situation creates a clear policy divergence, especially after the US durable goods orders beat expectations, showing only a -1.1% drop instead of the anticipated -10.8%. Given this contrast, we plan to buy put options on the EUR/USD currency pair, allowing us to benefit from a potential decline while limiting our risk to the premium paid. In Japan, we are monitoring reports suggesting officials may raise rates by the end of the year. This change would mark a significant shift from years of very loose monetary policy and could lead to a stronger yen. As a result, shorting currency pairs like USD/JPY or EUR/JPY through futures contracts looks appealing. The below-expectations UK retail sales data, despite a rebound, supports our negative outlook on the British pound. As the economy shows weakness, the Bank of England might feel pressured to ease policy sooner. We will look for chances to position ourselves for further GBP/USD declines. The current calm in US stock indices, alongside mixed messages from central banks, creates some uncertainty. The CBOE Volatility Index (VIX) has been hovering near historical lows around the 12-13 level, indicating complacency and resulting in lower option premiums. We see this as an opportunity to buy protection or make directional bets with limited risk, such as purchasing puts on broad market indices. Gold’s quick drop of over $25 from its recent highs is a reaction to the stronger US dollar and stable yields. The loss of momentum suggests that selling call spreads above the market to collect premium could be profitable. Meanwhile, Bitcoin’s steep decline to a new weekly low below $115,000 before recovering shows that high volatility is still the norm, presenting opportunities for nimble traders using careful risk management. Create your live VT Markets account and start trading now.European stocks fell as the dollar rose, while gold and cryptocurrencies decreased in value.
The Japanese yen is falling because of ongoing political uncertainties. European stock markets began the day lower as they await news on trade.
The European Central Bank claims inflation will stay at 2% for the medium term, with no need for immediate interest rate changes. German business confidence and French consumer sentiment didn’t quite meet expectations, and UK retail sales were lower than predicted.
Major Currency Movements
The dollar is making a comeback, with both EUR/USD and GBP/USD decreasing. The USD/JPY has increased against the yen due to Japan’s political troubles. Commodity currencies like USD/CAD and AUD/USD are also facing challenges because of changing exchange rates. European stocks dipped early on, impacted by Volkswagen’s disappointing earnings and LVMH’s weak sales report. The DAX index is down 0.8%, and updates on the US-EU trade deal are still pending, causing caution in the markets. Gold has fallen to $3,340, while cryptocurrencies like Bitcoin have dropped to two-week lows. As the week wraps up, investors are focused on trade news and upcoming tech earnings. It’s also important to watch the US jobs report and Trump’s deadline on August 1st. We see the dollar’s rise as a key indicator for the next few weeks, especially with EUR/USD and GBP/USD crossing below important moving averages. The weak Ifo data from Germany and a slowing money supply in the Eurozone support a bullish view of the dollar. Therefore, we plan to buy call options on the dollar index or sell put spreads on the euro.Trading Strategies and Market Outlook
The political issues affecting the yen create a clear trading opportunity. A rise above 147.80 is significant, and we’ve seen this before; during the 2022-2024 period, differentials drove USD/JPY well above 150. We will create bullish positions using call options on USD/JPY, aiming for a return to those historical highs. Warnings from Volkswagen and LVMH may be just the start for European stocks, which are sensitive to trade news. During previous tariff uncertainties, like in 2018, we’ve seen significant drops in export-heavy indices like the German DAX. We believe buying put options on the DAX is a good way to protect against further negative trade news. With major events like tech earnings and the August 1st jobs report approaching, we expect a significant increase in market volatility. The CBOE Volatility Index (VIX), usually below 15 in stable markets, could rise to the 20-25 range seen during past uncertain times. We’re buying VIX call options to take advantage of this anticipated volatility. Comments from officials like Kazaks and Rehn support our view that the European Central Bank will stay cautious. The downward adjustment of inflation forecasts makes a hawkish policy shift unlikely, making the euro less appealing. This aligns with our bearish view on EUR/USD and our strong dollar positions. The simultaneous drop in gold and Bitcoin suggests investors are seeking the safety of cash instead of alternative assets. When the dollar strengthens substantially, it tends to draw money away from non-yielding assets like gold, which recently faced resistance at the $3,430 mark. We’re watching for chances to short gold futures if it falls below recent support levels. Create your live VT Markets account and start trading now.Expectations suggest potential rate cuts from multiple central banks, while the Bank of Japan remains stable.
Recent market trends indicate a shift towards a slightly aggressive stance as trade uncertainty lessens. Expectations for central bank rate changes by the end of the year are as follows:
– **Federal Reserve**: Expected to cut rates by 43 basis points, with a 97% chance of no change at the next meeting.
– **European Central Bank (ECB)**: Projected to cut by 16 basis points, with an 86% likelihood of holding steady.
– **Bank of England (BoE)**: Anticipates a 47 basis point reduction, with an 82% chance of a rate cut soon.
– **Bank of Canada**: Forecasts a 12 basis point cut, with a strong chance of no change.
– **Reserve Bank of Australia**: Expects a 56 basis point cut, with an 87% probability of a cut at the next meeting.
– **Reserve Bank of New Zealand**: Planning for a 35 basis point decrease.
– **Swiss National Bank**: Facing a 7 basis point cut.
– **Bank of Japan**: Expected to raise rates by 22 basis points but likely to hold steady at their next meeting.
Impact of Trade De-escalation
The easing of trade tensions and expansionary policies have helped mitigate tariff effects, likely supporting this trend. However, reduced momentum may occur as current market realities set in, necessitating new drivers. There could be vulnerabilities in the market if positions in risk assets become too stretched. Dellamotta points out that betting against a recession is not as straightforward as before. With the S&P 500 reaching record highs over 5,400 in June 2024, it’s evident that the easing of trade tensions is already reflected in asset prices. Future growth will need specific triggers, rather than just general optimism. The path ahead appears more complicated, especially concerning the Federal Reserve. Although the market expects rate cuts, the latest US Consumer Price Index data for May showed inflation at 3.3%—cooling but still above the 2% target. For derivative traders, this means preparing for uncertainty around when the Fed will act instead of betting on a guaranteed cut.Shifting Monetary Policies
Central banks are already changing their approaches. Both the Bank of Canada and the ECB cut their key interest rates by 25 basis points in early June 2024. In contrast, the BoE kept its rate steady at 5.25% during its June meeting, despite high expectations for a cut. This divergence opens up opportunities in currency pairs and cross-market trades since monetary policies are not aligned. Due to the stretched positioning in risk assets, traders might want to implement strategies that benefit from increased volatility. Given the fragility of the market, any unexpected negative growth could lead to sharp sell-offs. Therefore, long volatility positions through options could be profitable. For example, buying straddles or strangles on major indices might provide protection and profit potential from sudden market moves in either direction. Historically, markets often rise on the expectation of rate cuts but can become choppy or even drop when cuts actually happen, confirming underlying economic weakness. We have observed this pattern in previous easing cycles, where the first cut marked a short-term peak for stocks before a consolidation phase. Thus, it is wise to be cautious about chasing rallies and be ready for a more complex, two-sided market in the upcoming weeks. Create your live VT Markets account and start trading now.Villeroy: US tariff increases shouldn’t raise inflation, emphasizes need for transparency in future monetary policy
The recent increase in US tariffs is not likely to raise inflation levels. Inflation is currently under control, which requires clear communication about future monetary policies. In an unpredictable environment, flexible and evidence-based strategies are essential.
**The Risks to Economic Growth**
Economic growth faces several downside risks. The rising Euro also has a disinflationary effect. Policymakers are exploring options for future interest rate cuts.
Given these factors, we believe the European Central Bank’s recent decision to cut rates by 25 basis points in June is likely not a one-time event. Markets expect at least one more rate cut by the end of the year, a view supported by Monsieur Villeroy’s dovish comments. Therefore, it’s wise to prepare for lower interest rates by considering moves like shorting short-term interest rate futures.
The mention of the Euro’s disinflationary effect is especially relevant for currency traders. Although Eurozone inflation rose to 2.6% in May, concerns about growth risks are paramount for policymakers. This suggests a widening gap in policies compared to the US Federal Reserve, making a case for buying put options on the EUR/USD, as the interest rate difference favors the dollar.
This monetary policy approach should benefit European stocks. The Euro Stoxx 50 index has already gained over 8% this year, and the expected further easing makes equities more appealing than bonds. We see value in buying call options on broad European indices to take advantage of this potential growth.
**Volatility and Market Opportunities**
The focus on “agile pragmatism” indicates that volatility might increase around future data releases, especially inflation reports. Historically, during the easing cycle from 2011 to 2014, the central bank took incremental actions, leading to periods of market uncertainty between meetings. As a result, utilizing options to manage risk or employing strategies like iron condors on European assets could be beneficial in the weeks ahead.
Create your live VT Markets account and start trading now.
Rehn stated that decisions will depend on inflation and growth risk assessments, causing delays in choices.
The European Central Bank (ECB) will make its monetary policy decisions based on the situation at each meeting, focusing on inflation and related risks.
Fears about economic growth are rising, suggesting that more time may be necessary for decision-making. According to a Financial Times report, a 15% tariff is expected as the ECB waits for more data and clarity on the US-EU trade deal.
Trading Strategy Implications
The ECB’s cautious approach shows their hesitation. This meeting-by-meeting strategy creates uncertainty, meaning traders should brace for more market fluctuations during key data releases. Buying volatility, such as through options, appears to be a smart strategy now. The ECB is worried about economic growth, even though the Eurozone’s GDP rose slightly by 0.3% in the first quarter. This adds a dovish tone, indicating that the recent rate cut in June might not be followed by another soon, limiting potential gains for the Euro. Therefore, we should think about strategies that could gain from a stagnant or weaker Euro compared to the US dollar. As the central bank takes time with its decisions, the market may move sideways until a significant event occurs. This environment is suitable for selling options to earn premiums, but the risks from a trade conflict remain high. Tariffs on European goods would primarily affect export-driven economies like Germany.Market Outlook and Strategies
In the past, periods of policy uncertainty have resulted in unstable, range-bound markets, often followed by sharp moves. For example, before critical policy changes during the 2012 sovereign debt crisis, we saw a similar trend. Thus, preparing for a significant move in either direction using long straddles on major European indices like the Euro Stoxx 50 could be beneficial. With Eurozone inflation slightly up to 2.6% in May, the bank is juggling the need to combat inflation while also supporting a weak economy. This dilemma reinforces our belief that derivative traders should prepare for sudden shifts rather than a clear trend. It would also be wise to hedge any long positions in European stocks with put options. Create your live VT Markets account and start trading now.The South Korean government aims for a tariff agreement with the United States like Japan’s.
Talks between South Korean ministers and US officials were delayed because of a scheduling conflict with US Treasury Secretary Scott Bessent. However, a meeting is now scheduled for Friday to discuss a tariff agreement between the US and Japan.
During these talks, South Korea presented a plan to the US Commerce Secretary that the US found intriguing. South Korea is seeking a deal similar to the one the US has with Japan, which could lead to tariff reductions in the 10-20% range.
Impact On Risk Assets
This potential deal could have a positive effect on risk assets, although much of the optimism is already reflected in current market prices. If the negotiations fail, South Korea might face a 25% tariff starting August 1, but there may be an extension if talks are nearing completion. We think the market has already considered the likely 10-20% tariff agreement, reducing the chance for large gains. The KOSPI index has stayed strong, close to the 2,800 level, indicating that investors are already optimistic. Thus, the best trading opportunity lies not in the expected outcome, but in preparing for surprises. With the August 1 deadline approaching, there is more downside risk if the discussions mentioned by Dellamotta do not succeed. A complete breakdown in negotiations would likely shock the market, causing the Korean Won to drop against the dollar and hurting export-reliant stocks. Traders might want to buy out-of-the-money put options on major Korean ETFs as a budget-friendly way to protect against a negative surprise after the meeting with Greer.Betting On Market Volatility
A strong strategy is to bet on an increase in market volatility. The VKOSPI, South Korea’s volatility index, has recently been trading below 15, a level that is historically low, making options cheaper. We recommend using straddles or strangles, which can profit from significant market moves in either direction, to take advantage of the uncertainty leading up to the deadline. History from past US trade negotiations shows that final results often lead to sharp market reactions. South Korea’s vehicle exports to the US were valued at over $45 billion in 2023, so any news on tariffs will have an immediate impact on that key sector. We will be closely monitoring signals after the postponed meeting with Bessent. Create your live VT Markets account and start trading now.Political uncertainty impacts market sentiment, leading to a decline of the Japanese yen against the dollar.
The USD/JPY has gone up by 0.5% as it approaches the 200-hour moving average. This increase follows reports that a Japanese lawmaker from the ruling LDP has gathered enough support to request a joint meeting of both houses of the National Diet.
The purpose of this meeting is unclear, but there are rumors that it could be related to a potential challenge to Ishiba. This political uncertainty has affected market sentiment, causing a drop in the Japanese yen.
