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Goldman Sachs warns that a decline in AI investment could cause a 20% drop in the S&P 500.
Goldman Sachs has warned that cutting back on AI investment may lead to a 15-20% drop in the S&P 500. This worry comes from the significant role AI-related companies play in the index.
At present, AI spending is strong. However, some analysts expect a noticeable slowdown by late 2025, which could negatively impact stock values.
Deutsche Bank expects the Fed to make three rate cuts during the rest of this year.
Deutsche Bank has updated its forecasts. It now predicts that the Federal Reserve will cut interest rates three times this year, with these cuts expected in September, October, and December. Previously, Deutsche Bank anticipated only two cuts—one in September and another in December.
Matthew Luzzetti, the bank’s chief economist for the U.S., noted that while their main prediction does not include more cuts in 2026, there is a chance this could change if the labor market and inflation shift. The Federal Open Market Committee will meet on September 16 and 17.
Market Reactions to Rate Cut Predictions
In contrast, Morgan Stanley had a different view. They predicted four rate cuts by January and two more in 2026. As the September FOMC meeting approaches on the 16th and 17th, the market largely expects a 25-basis point rate cut. This signals a strong belief that the Fed will start easing this month. Traders should prepare for confirmation of this expected outcome. Recent data supports this outlook. The August 2025 Consumer Price Index (CPI) report showed core inflation is slowly decreasing to 2.8%. Additionally, the latest jobs report indicated a slowing labor market, with nonfarm payrolls adding fewer jobs than expected—only 150,000. This gives the Fed a reason to start easing its policies.Opportunities in Trading and Investment
For those trading interest rate products, long positions in short-term interest rate futures, such as SOFR futures, could be advantageous. These contracts are valued based on future rate expectations, so their price should rise as the Fed confirms rate cuts. The forward curve is already signaling further cuts in October and December, creating opportunities for spread trades. In the equity market, this environment looks favorable for stock indices. Purchasing near-term call options or call spreads on the S&P 500 could help take advantage of any positive movement from a dovish statement by the Fed. However, since the rate cut is mostly anticipated, be aware of the risk of a “sell the news” reaction. Managing exposure to volatility is essential. We see this potential shift as akin to the Fed’s “mid-cycle adjustment” in 2019 when they proactively lowered rates to support growth. Following the aggressive rate hikes throughout 2023, this change marks a significant policy shift. Historical trends suggest that the Fed may implement more than one cut if economic data continues to weaken. Create your live VT Markets account and start trading now.UK house prices fell year-on-year, while rental prices rose at the slowest pace.
UK house prices fell by 0.1% year-on-year in September, marking the first annual drop since January 2024, based on the Rightmove House Price survey. However, asking prices for homes increased by 0.4% from the previous month, following a larger decline of 1.3%.
Zoopla’s survey found that average rental prices rose by 2.4% in the four weeks leading up to September 2, compared to the same time last year. This is the slowest increase in rental prices in four years. The number of available rental homes is on the rise, and average rents are expected to grow by 3% by the end of the year.
Mixed Signals in the Housing Market
The housing market is sending mixed signals. We have the first annual price drop since January 2024, alongside a slight increase last month, indicating uncertainty. This could lead to more price volatility in the weeks ahead. It might be wise to consider strategies that benefit from significant price movements, such as buying straddles on exchange-traded funds (ETFs) linked to UK homebuilders. The likelihood of a Bank of England rate cut before the year ends is increasing, especially since August’s inflation rate dropped to 2.8%. Markets are now anticipating over a 70% chance of a rate cut in November, a notable change from just a few months ago. This makes long-dated call options on interest rate-sensitive housebuilder stocks like Barratt Developments appealing, as cheaper mortgages could boost the sector. Rental price growth is now at its lowest in four years, at 2.4%. This is troubling for residential landlords and property investment trusts, impacting the earnings of major UK Real Estate Investment Trusts (REITs) focused on residential properties. Thus, there is an opportunity to buy put options on these REITs, betting their share prices will decline as the market responds to lower rental yields.Impact on the British Pound and Rental Market
The downturn in housing data, combined with the potential for earlier rate cuts by the Bank of England compared to other central banks, is putting pressure on the British pound. We have already seen Sterling drop from over 1.28 to around 1.24 against the dollar in the last quarter. Given this trend, shorting the GBP/USD currency pair through futures contracts could be a sensible hedge against UK economic weaknesses. It’s also worth noting that the small monthly rise in asking prices aligns with the usual autumn bounce we’ve experienced historically after a slow summer. In the autumn of 2023, we saw a similar rebound before the market continued to cool into early 2024. This suggests that the recent uptick may not signify a recovery, making it a good time to sell call options against property sector indices for premium collection. Create your live VT Markets account and start trading now.ANZ admits to bond trading misconduct, resulting in AUD 240 million penalties from the Australian regulator
Australia’s ANZ Group, one of the country’s top four banks, has admitted to wrongdoing in its bond trading services. The bank will pay AUD240 million in penalties as part of a settlement with the Australian Securities and Investments Commission (ASIC).
The issues included market manipulation during the issuance of government bonds and mistakes in reporting bond trading data.
Implied Volatility
We expect a significant rise in the implied volatility of ANZ options in the next few days. The implied volatility for short-term ANZ options has already surged to over 30%, similar to the stress the banking sector faced in early 2023. This indicates that traders may look to use strategies that benefit from price changes, such as buying puts to protect against further damage to ANZ’s reputation. The news will also change how the market assesses ANZ’s credit risk. We are already seeing the cost of ANZ’s 5-year credit default swaps (CDS) increase by 8 basis points to 62 bps, which indicates a higher cost to insure against the bank’s debt. Traders may want to buy CDS protection for ANZ or a group of Australian banks as a safeguard against potential wider issues.Regulatory Scrutiny on Banking Sector
This situation puts the entire Australian banking sector under closer watch. Increased scrutiny from ASIC could cause more uncertainty, affecting the S&P/ASX 200 Financials Index (XFJ). We should be on the lookout for higher trading volume and volatility in options and futures related to this index. Since the violations happened in bond trading, it is important to keep an eye on liquidity in Australian Government Bond (AGB) futures. The market’s trust has been weakened, which could result in wider bid-ask spreads for 3-year and 10-year AGB futures contracts. Any signs of lower liquidity could create short-term trading opportunities for those who are well-prepared. Create your live VT Markets account and start trading now.New Zealand’s August Services PMI drops to 47.5, signaling ongoing contraction and decreased consumer spending
New Zealand’s Performance of Services Index (PSI) for August is at 47.5, down from 48.9 in July. This shows the service sector has been shrinking for 18 months in a row, while the historical average is 52.9.
Several factors contribute to this decline, including inflation, high interest rates, and the rising cost of living. Additionally, low consumer confidence leads to less demand and spending. Other issues are seasonal slowdowns, higher operating costs, supply chain delays, and uncertainty in government policies.
Current Economic Landscape
As of August 2025, New Zealand’s service sector has contracted for 18 months, indicating ongoing economic challenges. This situation is likely to weaken the New Zealand Dollar and may prompt the Reserve Bank of New Zealand (RBNZ) to consider lowering interest rates sooner than expected. Traders might want to look into positions that benefit from a falling NZD/USD, such as buying put options on the currency. This low PMI reading follows the RBNZ’s shift to a softer tone in its August 2025 statement, where it maintained the Official Cash Rate (OCR) at 5.5% but removed hints of future rate hikes. As the Q2 2025 inflation rate moderates to 4.2%, markets are likely to bet on a rate cut in early 2026. This makes strategies like receiving fixed interest in swaps or buying futures on the OCR appealing. Consumer confidence pressures are evident in the recent Q3 2025 Westpac-McDermott Miller index, which is at a historic low of 80.5. This directly affects service-based companies and indicates potential risks for the NZX 50 index in the coming weeks. We think that buying put options on the index or specific consumer-discretionary stocks could be a good way to hedge or speculate on this weakness.Strategic Considerations for Traders
However, we should also consider that a turning point might be developing, even if recovery takes time. A similar pattern occurred during 2008-2009, where prolonged weaknesses in the services sector led to a strong, policy-driven recovery afterward. Therefore, strategies that benefit from increased volatility, like straddles on the NZD, could be wise for traders unsure about when recovery will happen. Create your live VT Markets account and start trading now.Tesla’s German factory output is expected to increase due to unexpected demand growth, despite low sales.
Tesla plans to increase production at its German plant in the second half of the year due to higher-than-expected demand, according to plant manager André Thierig. Production estimates for upcoming quarters have been raised, but no specific numbers have been shared.
This production increase comes despite recent weaker sales data, with new Tesla registrations in Germany falling by 39% last month and 56% for the year so far. Other European countries such as France, Belgium, Denmark, and Sweden saw similar declines, although Norway experienced double-digit growth.
The drop in numbers has been linked to changes in Model Y production at the Berlin facility. Even with these sales drops and production issues, Tesla’s updated production goals for its German plant might create a positive outlook after recent stock price increases.
However, the planned production boost clashes with the negative sales data we’ve seen in Europe. This gap between the optimistic future projections and recent poor performance is likely to lead to more market volatility. Traders should prepare for a wider range of potential stock price movements as we approach the Q3 delivery report.
For those with a bullish outlook, this news suggests that the earlier sales slump in 2025 was a temporary supply issue rather than a demand problem. A trader might consider buying call options that expire after the next earnings call in October, betting on a strong Q4 forecast that aligns with management’s expectations. This perspective is backed by recent data from the European Union, which showed a modest 1.5% recovery in overall EV registrations in August 2025 after a slow summer.
On the other hand, those who are bearish might be skeptical of the increased production guidance, viewing it as a ploy to improve sentiment. They may buy put options, believing that the sales weakness is genuine and driven by rising competition. According to August 2025 market share reports, rival companies have gained over 8% market share in Germany and France this year. The upcoming delivery numbers will be crucial in determining if the factory is making cars that consumers actually want.
Given the uncertainty, a volatility-focused strategy may be the best choice. Historically, Tesla’s stock has moved more than 15% in either direction after key announcements, particularly following the Q1 and Q2 earnings reports in 2024. A long straddle—buying both a call and a put option with the same strike price and expiration date—could profit from any significant price movement, regardless of whether the production news or the sales data turns out to be the more accurate signal.
Yuan strength supports emerging market currencies, helps regional central banks, and aids de-dollarisation efforts
China’s choice to let the yuan strengthen is affecting how investors view emerging markets. When the yuan shifts by 1%, currencies like the Thai baht, Malaysian ringgit, Chilean peso, Mexican peso, and Brazilian real usually move in the same direction. Currently, the connection between the dollar-yuan exchange rate and the MSCI EM Currency Index is at its highest since May 2024.
The People’s Bank of China has set the yuan at its strongest reference rate since November. This has resulted in over a 2% increase against the dollar this year, reversing earlier losses. Hedge funds are betting on the yuan rising even more, predicting it could reach around 7 per dollar by the year’s end, showing growing confidence in its strength.
Benefits of a Stronger Yuan
A stronger yuan helps Asian currencies and emerging market debt, furthering China’s long-term goal to internationalize its currency. It also allows local central banks to lower interest rates without weakening their own currencies, promoting a shift away from the dollar across Asia. With the yuan appreciating, opportunities are opening up in emerging market currencies. Because of the close link, a stronger yuan is likely to boost currencies like the Thai baht and Mexican peso. The People’s Bank of China’s recent reference rate, set below 7.10 for the first time in ten months, strengthens this trend. We anticipate the yuan will reach 7.00 against the dollar by the end of the year. We’re using put options on the USD/CNY pair, with expiration dates in December 2025 and January 2026. The implied volatility on these options is at multi-month lows, making long-term calls on the yuan relatively cost-effective. This indicates that the market expects a steady increase, rather than a sudden spike. We are also expanding our strategy by going long on a group of correlated emerging market currencies against the dollar. Recent data shows that Asian-focused currency funds attracted over 60% of new emerging market inflows in August 2025, supporting this approach. This trend is similar to the one seen in 2020-2021, when a stronger yuan led to a big rally in emerging market assets.Leeway for Regional Central Banks
The strength of these currencies allows regional central banks to cut interest rates more freely. For example, since the Malaysian ringgit gained nearly 3% this past quarter, we are monitoring for a possible rate cut from its central bank. This opens up possibilities for trading interest rate derivatives, anticipating a easing that once seemed unlikely. Create your live VT Markets account and start trading now.A court decision on Trump’s effort to remove Fed Governor Cook is pending, leading to uncertainty.
Trump is asking a US appeals court for permission to remove Federal Reserve Governor Lisa Cook. He made this request just before a Federal Reserve policy meeting, with a decision expected by Sunday.
Trump’s plan to remove Cook stems from claims about unresolved mortgage fraud. It’s said that she listed two homes as her primary residences. He is trying to overturn a lower court’s September 9 order that blocked this action and may take the case to the Supreme Court if needed before the Federal Open Market Committee meeting on September 16–17.
Central Bank Independence and Political Risks
This action follows accusations from FHFA Director Bill Pulte regarding transactions that occurred before Cook joined the Fed. The situation raises concerns about the independence of the central bank, which could have political implications that impact the US dollar and Treasury bonds just before the September rate meeting. As we await a court decision on Governor Cook’s status, we’re gearing up for potential market volatility leading into the September 16-17 FOMC meeting. The CBOE Volatility Index (VIX), known as the “fear gauge,” has recently hit its highest level in three months due to increasing uncertainty. To prepare, we are buying short-term call options on the VIX, which benefit from a rise in market anxiety. This challenge to the Federal Reserve’s independence is causing immediate downward pressure on the US dollar. A central bank viewed as influenced by politics may lose credibility, weakening its currency. As a strategy, we are using foreign exchange options to bet against the dollar, especially favoring positions in safe-haven currencies like the Swiss Franc and the Japanese Yen.Impact on Financial Markets
This scenario is creating chaos for interest rate derivatives, as political factors now cloud monetary policy. The yield on the 10-year Treasury note rose by 8 basis points in overnight trading due to fears of instability. Traders are retracting bets on a stable rate path, with implied volatility for federal funds futures reaching levels unseen since the banking turmoil of 2023. For the stock market, this situation adds risk that is hard to quantify, reminiscent of the market nervousness in 2018 when the White House often criticized the Fed’s rate decisions. In response, we are hedging our equity exposure by purchasing put options on major indices such as the S&P 500. These options serve as insurance, paying out if the market dips due to unexpected news about the Fed’s leadership or independence. Create your live VT Markets account and start trading now.Morgan Stanley expects the Fed to cut interest rates four times by January and twice in 2026.
Morgan Stanley predicts that the Federal Reserve will cut interest rates at all remaining meetings in 2023—September, October, and December—by 25 basis points each time. Initially, the bank expected only two cuts, in September and December.
The firm believes current market conditions enable the Fed to quicken its policy easing, forecasting four 25-basis-point cuts from September through January. They also anticipate two additional cuts in April and July 2026, with no further reductions expected that year.
Market Position for Easing Cycle
With a major Wall Street firm now projecting Federal Reserve rate cuts at each remaining meeting this year, we should prepare for a more aggressive easing cycle. This means we might want to buy short-term interest rate futures, like those linked to SOFR, since their prices will increase as yields drop. The market is already leaning this way, with futures pricing showing over a 90% chance of a 25-basis-point cut at next week’s meeting. Recent economic data supports this forecast, giving the Fed room to act. The August Consumer Price Index report revealed that year-over-year inflation has cooled to 2.8%, a notable decrease from earlier this year. Additionally, the latest jobs report indicated a slowdown in payroll growth to a modest 150,000, suggesting the economy is weakening enough to need stimulus. For equity derivatives, this situation is positive. We should seek to increase our long exposure through S&P 500 and Nasdaq 100 futures. Lower borrowing costs usually boost corporate profits and stock valuations, creating a favorable environment as the year ends. We can also buy call options on major index ETFs like SPY to gain upside exposure while limiting risk.Impact on Currency and Risk Assets
Historically, when the Fed shifts from holding to cutting rates, as seen in mid-2019, it has been beneficial for risk assets. During that time, the initial cuts helped prolong the economic cycle and sparked a strong market rally. A similar trend could emerge now, where falling interest rates make stocks more appealing than bonds. This approach of aggressive rate cuts will likely put downward pressure on the U.S. dollar. Thus, we should consider trades that benefit from a weaker dollar, such as selling U.S. Dollar Index (DXY) futures. Alternatively, buying call options on the Euro or Japanese Yen offers another way to position for this currency shift. Create your live VT Markets account and start trading now.If AUD/USD shows 0.6630, it may be incorrect; actual trading is near 0.6645, so proceed with caution.
If your AUD/USD charts show approximately 0.6630, the pricing might be incorrect. Retail FX charts often rely on the bid price, which can display around 0.6630 due to low interest. Meanwhile, the wholesale FX market’s trading price is closer to Friday’s level at about 0.6645.
On Monday mornings, market liquidity is usually thin until more Asian markets open, which can cause price fluctuations. It’s wise to exercise caution during this time.
