Traders are making bets on different scenarios around President Trump’s future, including resignation, removal, or even death. Prediction markets like Kalshi and Polymarket now offer contracts on whether Trump will stay in office until the end of this year. Last weekend, Kalshi and Polymarket started offering event contracts, suggesting there’s only a 6% to 10% chance that Trump will leave office before 2026. This indicates that most traders believe his departure this year is unlikely. These bets increased after rumors spread on X regarding Trump’s health, particularly his lack of public appearances and a photo showing a bruise on his hand. The White House attributed the bruise to a circulatory issue, while Trump stated he has “never felt better” and showed up at his golf course. Despite these reassurances, trading volume remains high. Polymarket recorded over $500,000 in trades, and Kalshi saw similar activity. Speculation about the president’s health has created a small but active market for these event contracts. Even though the odds of Trump leaving before 2026 are low, with estimates between 6% and 10%, the significant trading volume suggests there is notable concern. This kind of speculation, even if based on rumors, can indicate broader market anxiety. For derivative traders, this presents an opportunity to buy inexpensive protection against sudden market volatility. A past example from early October 2020 shows that the VIX jumped over 15% in pre-market trading following Trump’s COVID-19 diagnosis. Currently, with the VIX at a calm level of 16, buying out-of-the-money VIX calls expiring in October or November could serve as a cost-effective hedge against a similar shock. This low-probability, high-impact risk can also be hedged with options on major indices like the S&P 500. The market is currently reacting to a slightly weaker-than-expected jobs report for August 2025, which showed job growth slowing to 155,000. Thus, it may be more sensitive to political events. Buying SPX put spreads allows traders to prepare for a potential downturn without a fully bearish stance. Certain sectors will react more strongly to this political uncertainty. Traders should examine the implied volatility in sectors like healthcare, defense, and regulated industries, which have done well under the current administration’s policies. If the implied volatility on ETFs for these sectors is low, it could be a good time to buy puts or sell call spreads as a relative value trade against the broader market. Overall, the contracts on Polymarket and Kalshi signal potential tail risks rather than being the trade itself. The strategy in the upcoming weeks should focus on minimizing risks rather than heavily betting on specific outcomes. Small, tactical positions in volatility or index puts can offer significant protection if this low-probability event occurs unexpectedly.

here to set up a live account on VT Markets now

Strategists advise caution about betting on a falling U.S. dollar. They believe that anticipated interest rate cuts and past market strategies are already reflected in current prices. The forecast indicates a gradual decline of the dollar, with some potential for rebounds, rather than a sharp drop. Experts expect the U.S. dollar to stabilize in the coming months, despite possible rate cuts from the Federal Reserve. They highlight that trade and capital flowing into the U.S. will help support the dollar. Rabobank’s analysis suggests that the dollar’s chances of falling are limited, as the market has already accounted for easing. Adjustments made earlier by non-U.S. asset managers to protect against a dollar drop might ease downward pressure. Mizuho states that expectations for rate cuts are already built into the dollar’s value. They believe upcoming U.S. economic data and the Fed’s decision in September could help stabilize the currency. They note that a weak nonfarm payrolls report wouldn’t significantly harm the dollar. Additionally, U.S. trade policies direct capital flows to the U.S., which helps reduce downward pressure on the dollar. Since markets have already considered Federal Reserve rate cuts, making bold bets on a dollar drop isn’t wise. The major decline has likely occurred, suggesting any further weakness will be gradual rather than sudden. This hints that high-volatility strategies may not be effective in the next few weeks. The implied volatility for dollar currency pairs has dropped significantly, with the DXYV index, which measures expected volatility for the U.S. Dollar Index, hitting a one-year low of 6.8 last week. This indicates a general agreement that the Fed’s future actions are predictable, with less potential for surprises. Therefore, investing in expensive out-of-the-money options expecting big moves is likely not a good idea right now. With a stable or slowly declining dollar anticipated, selling options premium on key pairs like EUR/USD or USD/JPY seems wiser. Strategies like short strangles or iron condors could take advantage of the expected stability and time decay. This presents an opportunity to earn premium while the market awaits its next major event. Looking back, we remember the sharp dollar increase from 2022 to 2023, driven by unexpectedly high inflation and the Fed’s aggressive rate hikes. In contrast, September 2025 presents a more stable environment, as central bank actions are now largely integrated into prices. This historical comparison highlights that we’re in a different, lower-volatility situation. Recent data backs this view of a stable, rather than collapsing, economy. The August Nonfarm Payrolls report showed an increase of 150,000 jobs—while modest, it is not weak enough to push the Fed toward aggressive cuts. Moreover, the latest July 2025 core PCE inflation rate was 2.4%, indicating that price pressures are easing, not crashing. However, we must stay alert for potential dollar rebounds, supported by consistent trade and capital flows. This means that being completely short on the dollar carries significant risk of a rapid correction. Data from Q2 2025 confirmed strong foreign direct investment into the U.S., providing a solid foundation for the currency. As we approach the Fed’s September decision, options pricing suggests that the expected movement in currency markets will be minimal. This indicates that the market anticipates clear communication from the central bank. We should prepare for a period of stability rather than a major directional shift.

here to set up a live account on VT Markets now

UBS believes that strong earnings and expected interest rate cuts from the Federal Reserve make record-high U.S. stock prices less concerning. The firm advises continued investment in the market, fueled by economic growth and lower interest rates. Although September is usually considered a weak month for stocks, the overall environment looks favorable for gains. History shows that when the Federal Reserve cuts rates and the economy grows, stock markets tend to perform well.

Analysis Of PE Ratios

The S&P 500’s price-to-earnings ratio is about 22, near its historical peak. UBS thinks this is justified due to significant profit growth and optimistic future expectations. Concerns about stocks at record highs are minimal. Since 1960, the S&P 500 has averaged a return of 12% within a year of reaching a new record and 38% over the next three years. Currently, even with stocks trading at record highs, there’s no need for concern. The Consumer Price Index (CPI) for August 2025 is 2.9%, which supports the idea that the Federal Reserve will cut rates soon. The CME FedWatch tool indicates an over 85% likelihood of a rate cut at the next meeting, a strong positive sign for stocks when the economy is stable. In light of this, traders might explore selling out-of-the-money put credit spreads on major indices like the S&P 500. This strategy profits if the market trends up, stays flat, or even dips slightly, capitalizing on a supportive environment and time decay. It lets traders collect premiums on the belief that a significant downturn is unlikely in the coming weeks.

Historical Market Weakness

While some may focus on the S&P 500’s high price-to-earnings ratio of around 22, this appears supported by solid corporate performance. In the second quarter of 2025, S&P 500 companies reported an 11% increase in earnings compared to the previous year. This profit strength suggests that current valuations can hold. It’s important to remember that September has historically been the weakest month for markets, with the S&P 500 often declining on average since 1950. Any seasonal drop could provide a good chance to invest in bullish positions for the long term. This might include purchasing call options with expirations in December 2025 or early 2026 to take advantage of a potential year-end rally. Moreover, reaching all-time highs should not be a reason for caution. Since 1960, new record highs have resulted in average returns of around 12% in the following year. This indicates that strategies like bull call spreads, which limit risk while allowing for upside potential, are still smart choices for the remainder of the year. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Australia’s services PMI for August is 55.8, with the composite PMI at 55.5. This shows the biggest growth in the services sector in over three years, up from July’s 54.1 for services and 53.8 for the composite. According to S&P Global, the services sector’s growth sped up in mid-Q3 2025 due to strong domestic demand and improving external demand. The Future Activity Index suggests that growth will remain strong in the near term, and employment rose in August. While input costs and output charge inflation are still high, they have decreased compared to July. The composite PMI shows strength in both manufacturing and services, supporting expectations for positive GDP growth in Q3. Earlier, Australia’s S&P Global Manufacturing PMI for August was 53.0, the highest since September 2022. The strong PMI data for August indicates that the Australian economy is performing better than expected. This strength in domestic demand and employment puts pressure on the Reserve Bank of Australia to rethink its neutral stance. As a result, the market is now predicting a higher chance of a rate hike by the end of the year, a significant change from just a few weeks ago. For currency traders, this creates a positive outlook for the Australian dollar. With AUD/USD recently finding support around 0.6850, this data provides a solid reason to expect an upward movement, especially since the last quarterly CPI reading in July 2025 was a stubborn 4.1%. The recovery in external demand also supports the currency, improving the nation’s trade terms. On the equity side, ASX 200 derivatives might show mixed signals. While strong economic activity benefits corporate earnings, especially in the financial and mining sectors, the greater chance of monetary tightening could limit overall market enthusiasm. We expect that value and cyclical stocks will outperform growth sectors in this climate. The key point is that inflation remains high, even though it has eased slightly. We saw a similar situation in late 2022, where strong economic data led to aggressive RBA rate hikes that caused bond yields to spike. Option traders should consider strategies that benefit from increased price movements in both interest rate futures and the AUD. This strong services report comes right after the manufacturing PMI for August reached its highest level since September 2022. The Reserve Bank of Australia, which held the cash rate at 4.35% in its August meeting, will find it hard to overlook this widespread economic strength. We believe preparing for a stronger Australian dollar and higher bond yields is the sensible approach in the coming weeks.

here to set up a live account on VT Markets now

A DC Circuit appeals court has reinstated Rebecca Slaughter to the Federal Trade Commission with a 2 to 1 vote, despite attempts to remove her without explanation. This decision could strengthen Federal Reserve Chair Powell’s position, providing him with increased job security. His current term is set to end in May 2026.

Impact of the Court Decision

The court’s ruling to restore an FTC commissioner acts as a check on executive power. This lowers the immediate political risk for Fed Chair Powell and increases the chances that he will complete his full term until May 2026. This stability is important as we face a challenging economic environment. The bond market has shown implied volatility, as measured by the MOVE index, hovering around 125 amid speculation about a leadership change at the Fed. Now, that political risk should start to ease. This comes even as the latest inflation data from August 2025 shows core prices remaining steady at 3.2%, keeping the Fed’s data-driven approach intact. For derivative traders, this means the direction of monetary policy will likely be more predictable and less influenced by politics. We expect the market to lower the small chance of an aggressive, politically-driven rate cut before the end of 2025. As a result, selling short-dated options on SOFR or Fed Funds futures that rely on a surprise cut may be less appealing.

Market Implications

A more stable Fed outlook is likely to reduce volatility in equity markets. With the VIX index recently reaching 19 due to policy concerns, we see a chance to profit by selling options, such as VIX calls or iron condors on the SPX. In late 2018, when the administration and the Fed reached a perceived truce, volatility sharply decreased. The likelihood of Powell’s continuation means the Fed will maintain its commitment to combating inflation based on economic data rather than political pressures. Therefore, options strategies anticipating a consistently hawkish Fed might be beneficial. This approach could involve preparing for rates to stay higher for an extended period, more than some in the market currently expect. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Treasury Secretary Bessent is starting interviews to find a new Federal Reserve Chair to replace Powell this Friday. The interviews will take place in person or via video and will continue into next week. There are 11 candidates for this important role. Notable names include Fed governors Christopher Waller and Michelle Bowman, National Economic Council Director Kevin Hassett, and former Fed governor Kevin Warsh. After the interviews, Bessent will send a shortlist of candidates to President Trump. Trump had mentioned that the search for Powell’s successor would begin soon after Labor Day. Now that the official search is on for the next Federal Reserve chair, we expect market volatility to rise. This uncertainty around future monetary policy suggests that the calm market conditions we saw in August are likely coming to an end. Traders should brace for larger price changes in interest rates, currencies, and stocks in the upcoming weeks. We think it makes sense to prepare for this shift using options, especially since the CBOE Volatility Index (VIX) is currently low at 14. This situation feels similar to late 2017, just before Yellen stepped down and Powell took over, which led to a big spike in volatility in February 2018. As a result, we are considering buying VIX calls or VIX futures set to expire in October as a hedge against increasing market instability. The initial list of candidates includes hawks like governors Waller and Bowman, which suggests that a more aggressive interest rate policy could be on the horizon. A hawkish appointee would likely mean a “higher for longer” interest rate situation, which could hurt growth stocks that have done well this year. This is a direct risk for the Nasdaq 100, which has surged over 12% in 2025 based on the belief that the Fed’s tightening cycle was over. Given this risk, we are pricing protective puts on the QQQ, the ETF that tracks the Nasdaq 100. Any news hinting that a hawkish candidate is leading could quickly undo the recent gains in tech and other rate-sensitive sectors. A drop back to last quarter’s lows wouldn’t be unexpected in such a case. This leadership change will also affect the Treasury yield curve, which has already flattened significantly this year. A hawkish Fed chair would likely keep short-term rates high, increasing the chance of a deeper inversion between the 2-year and 10-year yields. Therefore, we are looking at trades that would profit from falling prices in long-duration bond ETFs like TLT.

here to set up a live account on VT Markets now

Stress signals among lower-income households show risks for U.S. consumption, which drives growth. While wealthy consumers support the market, rising inequality may reduce overall demand and challenge the recovery. The McDonald’s CEO highlighted that the struggles of middle- and lower-income Americans could indicate larger economic issues. Wealthy households are still spending on travel and enjoying strong stock markets, but lower-income consumers have sharply cut back, leading to double-digit drops in McDonald’s traffic from this group. Many are even skipping meals, especially breakfast, to save money. Retailers are warning that spending on non-essential items is falling, signaling a fragile economy.

Economic Pressure On Lower-Income Groups

The CEO stated that middle- and lower-income consumers are under significant strain, while those earning over $100k are doing well. The stock market is near record highs, reflecting wealth, but traffic from lower-income customers has dropped noticeably. The Federal Reserve sees this, yet stubborn inflation complicates their plans for cutting interest rates. There are clear signs of stress among lower-income households that could harm U.S. consumption. The retail sales report from August 2025 showed sales at general merchandise stores falling for the second month in a row, despite a generally positive number. This suggests that a bearish outlook on consumer discretionary ETFs like XLY might be wise, perhaps using put options to benefit from potential declines. On the flip side, spending by affluent consumers remains strong, supported by stock markets that recently hit new highs in August 2025. This presents opportunities for pairs trading strategies—buying high-end retail and travel stocks while shorting companies that rely on middle- and lower-income budgets. Such trades could profit from the growing divide in consumer health. The Federal Reserve faces a tough situation, as the July 2025 Consumer Price Index (CPI) showed a 3.5% increase, making near-term rate cuts unlikely. This policy hold, coupled with weakening economic data, could lead to more market volatility. The uncertainty seen in late 2023 reminds us of the need to consider buying protection through VIX call options or SPY put spreads.

Market Uncertainty And Investment Strategy

The sharp decline in traffic at a benchmark like McDonald’s is a major warning sign. While the company may adjust, this trend signals significant challenges for the quick-service restaurant sector and other budget-friendly staples. We need to reassess any optimistic positions in these areas, as the strain on their main customer base is growing. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Ray Dalio warns that the US might experience a “debt-induced heart attack” in about three years due to recent spending sprees. He believes this could occur “give or take a year or two,” raising alarms about the nation’s financial stability. The mismatch between the supply and demand for US debt could force the Federal Reserve into a tough spot. It might need to let interest rates rise, which could lead to a debt-default crisis, or print money to buy unwanted bonds. Both choices could hurt the US dollar and raise doubts about its fiscal reliability.

Long-Term Warning Becomes Short-Term Reality

The long-term warning about a US debt crisis is now becoming an immediate concern. With national debt exceeding $39 trillion, stress is mounting in the financial system. This pushes us to brace for the Federal Reserve’s tough decision: raise rates and risk defaults or print money and cause inflation, both harmful to the dollar. For those trading derivatives, this environment means we can expect increased volatility in interest rates and currency markets in the coming weeks. Looking back at the instability in the UK gilt market in 2022 shows how fast confidence can crumble when fiscal policy is questioned. Using options to hedge against sharp market swings, like VIX calls or puts on long-duration Treasury ETFs such as TLT, appears to be a wise strategy. The US dollar is particularly vulnerable. It could weaken whether the Fed raises rates in a slowing economy or has to print money. The Dollar Index (DXY) has already shown considerable weakness this year, falling below the 100 level multiple times. This makes strategies like buying puts on the dollar or call options on safe-haven assets like gold and the Swiss franc more appealing.

Weakening Demand for US Debt

Signs of weakening demand for US debt are starting to show in government auctions. Last month’s sale of 10-year notes saw a bid-to-cover ratio of just 2.2, a historically low number that indicates investors are reluctant to take on the large supply of new bonds. This could lead to higher long-term interest rates to attract buyers, posing even more risks to the economy. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

JP Morgan believes that the Federal Reserve’s current policies are too strict given the mixed signals from the economy. They argue that it might be time to start cutting interest rates. Still, they caution that the Fed is unlikely to make drastic cuts due to tight labor markets, rising wages, and strong consumer spending. The firm also highlights the strong earnings from the Magnificent 7 stocks. Despite this, they expect a gradual shift toward a more balanced S&P 500, with earnings growth aligning between big tech and other sectors by 2026. They recognize the challenges faced by low- and middle-income households, while noting that higher earners are driving much of the economic activity. Overall, JP Morgan suggests that while rate cuts are warranted, the Federal Reserve should be careful in making these adjustments. The Fed’s current policy appears too tight considering the mixed economic signals we are observing. This supports the idea that a cycle of interest rate cuts might begin soon. For traders dealing in derivatives, this outlook favors setting up for gradually decreasing interest rates over the next few weeks and months. However, we don’t expect the Fed to take drastic action. The August 2025 jobs report showed an increase of 190,000 jobs, and core inflation remains steady near 3.5%. This cautious approach suggests that while long positions in Treasury futures make sense, they do carry some risk. A safer strategy may involve using options, like buying call spreads on bond ETFs such as TLT, to limit potential losses if the Fed takes longer than anticipated to cut rates. In the stock market, the earnings power of the Magnificent 7 stocks continues to support the major indices. From the start of the year to August 2025, these top seven tech stocks have returned over 35%, while the other 493 companies in the S&P 500 have only returned 8%. This trend grew stronger throughout 2023 and 2024. This focus on a small group of stocks indicates a potential rotation into the broader market as we approach 2026. One way to position for this shift is to maintain a positive outlook on the S&P 500 using SPY calls, while also purchasing protective puts on tech-heavy indices like the QQQ. This strategy allows investors to benefit from general market gains while also protecting against potential downturns in the most crowded parts of the market. Given the uncertainty around when the Fed will cut rates, we do not anticipate a sharp drop in market volatility. This environment, reminiscent of the uneven conditions we faced in early 2024 before the Fed’s change in direction was confirmed, may prevent the VIX index from reaching its historical lows. To generate income from this expected stability, selling short-dated, out-of-the-money options on indices could be an effective strategy.

here to set up a live account on VT Markets now

Today’s attention is on the Australian GDP data for Q2 and the Chinese private-survey services PMI. We expect the Australian economy to show some improvement from Q1, although not a significant change. The Chinese services PMI, now referred to as the Ratings Dog/S&P Global PMI (previously Caixin/S&P Global PMI), released its August data. The Manufacturing PMI was at 49.4, while the Services PMI met expectations at 50.3.

Manufacturing PMI Data

The S&P Global Manufacturing PMI for China in August was reported at 50.5, surpassing the expected 49.5 and the previous figure of 49.5. Additionally, Reserve Bank of Australia Governor Michele Bullock will give the Shann Memorial Lecture, discussing how technology impacts central banking. This information is part of the daily Asian economic calendar for September 3, 2025, with updates available on the investingLive economic data calendar. This calendar provides GMT times and compares previous figures with consensus expectations. We are closely watching tomorrow’s Australian GDP numbers for clues about market direction. Following a slow 0.1% growth in Q1 2025, any improvement might lower implied volatility for the Australian dollar. If the data aligns with expectations and there are no major surprises, selling options could be a smart move.

Conflicting Signals From China

The mixed signals from China’s August PMI data are creating uncertainty. The official manufacturing PMI fell to 49.4, indicating a contraction, while the private S&P Global survey rose surprisingly to 50.5. Tomorrow’s private services PMI will be crucial; a strong result could boost sentiment for commodities like iron ore, while a weak one could support the narrative of a broader slowdown. This inconsistency in Chinese data complicates how to position ourselves in the coming weeks. We have seen this situation before in late 2024, when conflicting data led to unstable markets for proxy assets like the AUD/USD. For now, traders might want to consider strategies suitable for a range-bound market or use options to manage risk for any directional bets. Later, the speech by RBA Governor Bullock represents a key event risk, even if it seems academic. The RBA has maintained the cash rate at 4.35% for much of the past year, so we’ll be looking for any spontaneous comments about the economy. Surprising remarks could easily sway markets, making this a moment to watch before making longer-term trading decisions. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now