The final China PMI for May is set to be released, including the Caixin Services and Composite PMIs. Recent reports show that China’s May Manufacturing PMI rose slightly to 49.5, while the Non-manufacturing PMI dipped slightly to 50.3. The Caixin Manufacturing PMI decreased to 48.3 from 50.4. Authorities have promised more stimulus, with announcements expected around June 18-19. The PMIs from China’s National Bureau of Statistics (NBS) and Caixin/S&P Global differ in focus and methods. The NBS PMI mainly looks at large, state-owned companies across various industries, while the Caixin PMI focuses on small and medium-sized enterprises (SMEs) in the private sector. The NBS surveys around 3,000 companies, giving a broad view of traditional industries, while Caixin surveys about 500 firms, emphasizing export-driven and tech-oriented companies. NBS PMIs are released monthly on the last day, covering both manufacturing and services. Caixin PMIs are published on the first business day of the month, focusing only on manufacturing and services. The NBS PMIs provide insights into policy-driven economic stability, while Caixin reflects current market conditions. Together, they paint a detailed picture of China’s economic situation from both macro and micro perspectives. Though the overall PMI figures are close to the critical 50 mark between contraction and expansion, the differing numbers reveal unique trends within China’s industrial and service sectors. There’s a minor improvement in manufacturing data from official reports, while the private sector shows a different story—likely reflecting challenges faced by export-focused and tech-driven companies that are more vulnerable to global demand fluctuations. Looking ahead, the upcoming policy support, with potential announcements in mid-June, adds a new factor to consider. Markets often anticipate stimulus, but the timing and scale can vary. The difference between official manufacturing data and private sector figures suggests that larger companies may be coping better with lower orders thanks to government support, while smaller firms struggle without the same backing. When there’s a growing gap between these two readings, it historically precedes shifts in market sentiment, affecting swap rates and implied volatility in regional assets. We should see this gap not as a minor issue, but as an early indicator of changes between policy directions and real business performance. On the policy side, the non-manufacturing number staying slightly above 50 indicates ongoing domestic demand, but the downward trend is concerning. If this becomes a lasting trend, we may need to adjust our expectations, especially regarding consumption-related inputs. When the Caixin data is released this week, we should focus not only on the overall numbers but also on key sub-indices like new orders, input costs, and employment. These sub-indices often provide valuable insights for predicting short-term trends and cross-asset hedging. Additionally, following the previous weak private sector data, market positioning has become more cautious. Short-term volatility markets are factoring in further drag through early July, impacting CNH and A-shares, as well as regional FX pairs. This could change quickly, especially if June announcements align the rhetoric with concrete actions. There’s a limited opportunity. If policy indications align with real-time data, it might be a good time to reduce downside protection and adjust for potential recovery—especially in interest rate curves that closely follow onshore trends. On the flip side, if the upcoming services and composite figures show further weaknesses, this could validate cautious market positions, especially considering the retail and SME responses from last quarter when weak numbers persisted over several months. We must keep an eye on whether the forward-looking components in the PMI data improve or merely stabilize. Shifts in these components often signal broader changes in market expectations and risk appetites. This period—between data releases and policy responses—is where markets can misprice risk. Discrepancies often occur between the data and how quickly authorities implement stimulus, and it’s in these short-term gaps that positioning becomes crucial.

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Dogecoin (DOGE) is a hot topic in the cryptocurrency world, with its speculative appeal drawing attention. Currently, DOGEUSD is priced just over 19 cents. Analysts believe DOGE may soon test the important $0.20 mark, with good support around $0.194. If buyers keep their momentum, DOGE could rise into the $0.20 range soon. Some predictions suggest there may be short-term ups and downs, with some models forecasting a dip to about $0.1866 before bouncing back to around $0.225. CryptoTicker highlights that DOGE could reach between $0.24 and $0.25 or drop to $0.18, with an equal chance of stabilizing at $0.19. The outlook for the middle-term remains positive due to growing interest and activity. Consensus estimates place short-term prices between $0.20 and $0.26, averaging around $0.245. By the end of the year, predictions suggest prices could hit $0.45 to $0.50, depending on overall market conditions. Key support and resistance levels are set at $0.193 to $0.194, with resistance between $0.20 and $0.2074. Although long-term predictions can vary, some indicate significant growth potential. Traders should stay vigilant regarding market movements and DOGE’s possible volatility. Looking at the current price near 19 cents, it’s clear that the enthusiasm for DOGE is largely fueled by speculation rather than solid fundamentals. The $0.20 mark represents a strong psychological point for both buyers and sellers. This scenario isn’t new; currencies often react sharply when they approach key round numbers. Immediate support is around $0.194, suggesting strong interest from larger investors. From a trading perspective, a decline to roughly $0.1866 before a significant bounce stands out. Such a pullback could serve two purposes: it might eliminate weaker positions and offer a chance for those looking to re-enter the market at a lower price. We’re focused on these “squeeze zones,” where prices fluctuate in low liquidity areas. There is also a possibility of a rise to $0.24 or more, but markets don’t move in a straight line. Consolidation around $0.19 is just as likely, which clarifies the situation. When prices stall at this level, it indicates that both sides are hesitant to commit until more information or sentiment emerges to push the price beyond the current range. We interpret this as either a pause before a continuation or early signs of a reversal, based on volume and positioning changes. Current short-term projections cluster between $0.20 and $0.26, with the average estimate hovering around $0.245. This indicates a mild optimism, yet it remains realistic. Longer-term predictions of reaching $0.50 by year-end are built on growing market participation and speculative interest. Previous volume increases have supported similar sentiments and may do so again, especially during broader risk-on movements in other volatile tokens. Support is holding near $0.193 to $0.194, with defined resistance between $0.20 and just above $0.207. These thresholds show that there are enough bids and asks in the order book to slow down movements. As we get closer to these levels, speed and timing become more important than direction. While there’s a wave of positive sentiment in the mid-term, price reversals can still happen, especially if unexpected macro or regulatory news surfaces. For anyone trading at these levels, watching implied volatility and options skew may give clearer insights than price alone. Significant increases in delta hedging often signal forthcoming directional moves. In the upcoming sessions, we expect a mix of strategic buying and quick profit-taking around the $0.20 mark. How prices behave near $0.194, especially during low volume hours, will be telling. We plan to react to both sharp declines and steady increases. Overall, while there are clear boundaries for trading, long-term expectations might need adjusting based on how disciplined reactions are around this range. If prices move above resistance easily, we’ll see that as a positive sign. Otherwise, we will monitor for signs of weakening strength and declining liquidity, which could lead to sharper price swings.

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Alberta Premier Danielle Smith is hopeful about a possible trade agreement between Canada and the United States. A report from the Toronto Sun indicates that this could happen before the G7 summit, potentially as early as next week. The proposed deal would not cover every detail but would highlight key points of a new trade arrangement. This could bring more stability and lower tariffs on Canadian steel, which might help boost the Canadian dollar.

Progress in Trade Talks

Mark Carney confirmed that discussions with the US are moving forward. Canada’s top trade negotiator was recently in Washington, and the minister of industry mentioned that more time is needed to address tariff issues. The USD/CAD exchange rate has reached its lowest point since October, with little support until it hits 1.34. In simple terms, there are signs that trade relations between Canada and the US might be improving. Smith seems confident that a preliminary trade deal could be on the way—though it won’t be a full agreement, it should help ease some issues, particularly concerning Canadian steel exports. Such progress can improve sentiment and increase demand for the Canadian dollar. Carney’s brief comments confirm that real talks are happening, not just in theory, but with actual negotiators involved. His tone is measured, reflecting genuine engagement that matters to markets, especially in currency trading, where even small updates can lead to quick changes in positioning.

Currency Market Effects

The current price movements in the USD/CAD pair are noteworthy. It’s at its lowest level in over six months, with scant immediate support until 1.34. This doesn’t automatically predict a downward trend, but the lack of a solid support level puts pressure on the US dollar. Unless demand from the US picks up, the Canadian dollar could have room to gain more value. We’re not expecting drastic changes, but the outlook looks gentler unless buyers step back in. Attention should be paid to any announcements that come out, especially the wording used—whether it’s conditional or binding—and how tariffs are mentioned. Not all headlines carry the same weight. The difference between “discussions continue” and “an agreement has been reached” may seem slight, yet it can lead to very different outcomes. From our perspective, short-term contracts may quickly reflect new expectations, especially when policy and real trade are considered together. Spreads could start leaning towards long positions on the Canadian dollar, particularly among those already hedged against dollar exposure. Monitoring for shifts in implied volatility will be essential since markets have been stable lately, which can hide subtle changes in expectations. Risks still exist on both sides. A delay in the agreement or less favorable language could undermine recent support for the Canadian currency and shift momentum quickly. Powell will speak next week, and while his comments might not relate directly to this issue, any change in the US Federal Reserve’s tone could tighten conditions and limit further gains. What might have started as a simple bilateral discussion could expand into a broader economic narrative. Keeping track of movements in two-year notes and the five-year breakeven will provide real-time insights. For now, order books are thinning around the 1.3350 level. This doesn’t leave traders much room if prices drop further. We’ll be looking for changes in dealer positioning as more data comes in; any decline could trigger rapid moves if stops are hit. Create your live VT Markets account and start trading now.

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Economic activity has slightly decreased since the last report. Half of the Districts reported small to moderate declines, while three had no change, and three experienced slight growth. All areas noted high levels of economic and policy uncertainty. Consumer spending varied, and residential real estate sales remained stable. Employment numbers stayed steady, but hiring was cautious due to uncertainty. Tariffs caused moderate price increases, which often affected consumers. Manufacturing saw slight decline influenced by tariffs and reduced investment.

Overview Of Economic Activities

The current summary shows a modest slowdown in economic activity. Among the twelve regions surveyed, six reported modest declines in business conditions, three mentioned their economies were flat, and three reported mild gains. Overall, businesses are feeling uneasy, with nearly all sectors facing high levels of uncertainty about market direction and future policies. Consumer spending, an important indicator of economic health, has been inconsistent. Some areas noted higher retail activity in essential goods, but signs of restraint were also present. This could indicate lower confidence, likely due to rising prices and reduced disposable income. The housing market, however, remained stable. Real estate agents across regions have not reported major changes in residential property transactions, although buyer sentiment is cautious and cost-sensitive. Employment figures showed no dramatic shifts. Companies are not laying off workers but are hesitant to hire new ones. Business owners often cite unpredictable regulations and economic factors as reasons for their caution. In sectors like services and light industrial jobs, temporary contracts are preferred over permanent positions. Price pressures, largely due to tariffs, have become more noticeable. Industries that depend on imports—especially construction, manufacturing, and technology—have had to raise prices. Suppliers are passing these costs directly to consumers, which could further strain household budgets in the coming months.

Market Sensitivities And Projections

The manufacturing sector reflects this cautious outlook. There has been a slight reduction in output due to fears of more stringent tariff policies and a sharp decrease in new capital investments. Factory managers are currently worried about inventory risks and future orders rather than demand. As a result, movements in the derivatives markets are likely to remain sensitive to inflation indicators, trade data, and employment trends. Bond futures may see increased volatility as traders adjust their expectations based on central bank comments and data showing price stability and emerging wage trends. Equity options, particularly those related to cyclical and consumer-focused stocks, may experience wider price ranges as earnings reports come in. Differences in outlooks across sectors could lead to market rotation, creating both opportunities and a need for greater precision compared to a generally rising market. Expect some widening in implied volatility around major macro events and policy announcements. From our observations, short-term positioning should be flexible. It involves not just protective strategies but also opportunities for directional plays in areas sensitive to policy rates, trade, and yield curve changes. With price increases coming from tariff pass-throughs, we expect inflation rates to remain elevated in specific areas but not across the board. This could complicate assumptions about a smooth economic landing. Attention should focus on the key data that influence central bank decisions: CPI, PPI, and wage growth. As we gain clearer insights from agency-level trade data and regional business surveys, we will closely monitor any growing gaps between national headline indicators and local sentiment. Create your live VT Markets account and start trading now.

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Bank of America expects nonfarm payrolls to increase by 150,000 in May. This is higher than the general expectation of 120,000 but lower than April’s increase of 177,000. They caution, however, that there may be risks due to changes in hiring related to trade. The unemployment rate is likely to remain stable at 4.2%. Hiring in trade and transportation may have slowed after an initial rise due to tariff concerns. There is worry that uncertainty over tariff policies could affect job growth. Currently, large layoffs are not expected. Bank of America believes that a slight drop in expectations probably won’t change the Federal Reserve’s current approach. While the expected payroll increase is stronger than what many forecast, tariff risks are still a concern. The labor market’s stability suggests the Fed may keep its position unless job growth significantly declines. In simple terms, hiring continues to grow but at a slower rate. Bank of America anticipates moderate job creation—better than expected but less than last month. This indicates a stable labor market, but it isn’t speeding up. The central bank is likely to maintain interest rates unless there’s a more visible decline in job data. However, there’s caution due to possible risks, mostly from unpredictable trade conditions rather than overall economic weakness. Specifically, job growth in key sectors like logistics and goods transport seems to have slowed, which is understandable given the current trade policy issues affecting business planning. Employers in these areas might be waiting for clearer policies before making decisions. When tariffs are uncertain, companies often delay investments and expansion plans. While this approach makes sense for businesses, it can lead to short-term market fluctuations. Overall, payroll growth supports the idea that the economy is strong, but some signals—especially from trade-sensitive sectors—are flashing warning signs. The situation is not due to poor fundamentals, but because hiring is temporarily stalled amid unclear policies. Unlike widespread job losses that usually prompt changes in interest rate decisions, we are currently seeing more of a pause. This keeps the policy steady and lowers risk for rate positions. Strategically, this situation makes timing trickier. We’re observing a softening at the edges, not a major breakdown. This creates a different trading environment. We should think about sectors and indices that are likely to react strongly to job reports but may not maintain momentum if the job numbers are only slightly above or below expectations. Options pricing might not fully reflect potential volatility, especially with May’s report approaching, as there seems to be a higher chance of softer data. Since rate expectations are stable unless job numbers drop significantly, fixed income volatility may remain low, but there could be near-term opportunities. Traders could consider put spreads or low-delta call options on indices tied to industrial hiring for asymmetric returns, especially if they’re currently downplaying the chance of significant market moves. Experts like Harris have noted that even a small miss in job numbers could cause overreactions in shorter-term contracts. We agree it’s better to stay flexible and not overly committed as payrolls approach, focusing not just on the main number but also on revisions and sector details—particularly in warehousing, wholesale trade, and heavy freight. There’s enough uncertainty that prices could shift quickly in either direction, even if the overall job growth number remains stable. This variance between data and market pricing is often where opportunities arise.

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Saudi Arabia plans to raise its oil production by 411,000 barrels per day in August and possibly September. This strategy aims to secure a bigger share of the global oil market. The announcement caused oil prices to drop slightly. However, prices are still fluctuating within a certain range.

Strategic Production Adjustments

This situation showcases ongoing strategic changes in production. Saudi Arabia’s move could significantly affect the global oil market in the near future. By increasing output by 411,000 barrels per day, Saudi Arabia clearly intends to strengthen its position in international crude markets. The result was a minor decrease in oil prices, but they have mostly remained stable, indicating market uncertainty about the effects of this increased supply. This shift seems like a way to test market reactions at current demand levels. Price trends show that while the news created some downward pressure, there hasn’t been any panic selling. Brent and WTI contracts still find support at key technical levels, with an upper limit that has repeatedly curbed price increases recently.

Market Perspective and Economics

From our view, the situation exhibits a tug-of-war between Saudi supply plans and market expectations regarding Chinese demand, U.S. economic data, and geopolitical tensions. With the Federal Reserve maintaining strict monetary policy and mixed economic sentiment, traders are cautious about making bold moves. It’s vital to note that global refiners are about to enter a period of steady demand as summer travel slows down and autumn maintenance begins. This combination of increased supply and potentially lower refinery demand might lead to price declines, especially if U.S. or OECD inventory data shows increases. What’s important here is Riyadh’s confidence in timing, suggesting they believe the demand can handle the extra production. Whether prices stay stable or fall will depend mainly on downstream market responses. If diesel and jet fuel consumption drops and inventories rise, market attitudes may turn more negative. Volatility measures have steadied, but open interest remains low, suggesting many traders await clearer signals. We advise focusing on spreads, especially between front-month and second-month contracts, to assess near-term expectations. Recent flattening here suggests that the front end may be stabilized, possibly because of anticipated physical weaknesses as we approach the September delivery period. In simpler terms, if the growth in supply isn’t matched by a similar increase in demand, flat structures and declining time spreads might become more noticeable. This could open opportunities in calendar spreads and product crack spreads, which are sensitive to small changes in refinery margins and shipping flows. Traders may find hedging strategies beneficial by aligning with these trends, especially as risk appetite decreases. We’re also monitoring how options volumes respond ahead of the next OPEC+ meeting. The demand for downside protection has remained consistent, but a drop below support levels could trigger a sharper market adjustment. It’s crucial to concentrate on inventory data and any deviations from expected decreases. Supply-side changes are already in the market. The future shift will depend on consumption clues, particularly regarding U.S. gasoline demand, which has shown inconsistent strength that might impact producers’ breakeven levels. Overall, the shift in market sentiment reflects a delicate balancing act. If demand figures fall short or production increases too quickly, volatility could return rapidly. In the coming weeks, staying flexible and observing curve structures may provide clearer signals than just looking at flat prices. Create your live VT Markets account and start trading now.

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The Governor of the Bank of Canada, Tiff Macklem, highlighted the current ups and downs in inflation rates. He emphasized that we should not focus too much on individual monthly reports. Since April, the chance of the Bank of Canada’s ‘severe’ scenario has lessened. The Governor mentioned potential future rate cuts, but these should not be seen as definite guidance.

Currency’s Role in Inflation

The strength of the Canadian dollar (CAD) is impacting inflation levels. Officials plan to return to a single central scenario by July, as market sentiment stays positive. The economic effects of forest fires have also been recognized. On the currency side, the USD/CAD exchange rate has dropped to its lowest level since October. Currently, the odds of an interest rate cut in July are about 40%. Recent comments are not viewed as strongly leaning towards cuts. Macklem’s statements remind us that policy decisions shouldn’t rely on short-term data changes. What really matters is if the overall trend in inflation aligns with long-term goals. We prefer looking at these ongoing trends instead of the monthly fluctuations. This helps us avoid misinterpreting temporary changes as signs of lasting shifts. Back in April, there were more worries about a worst-case scenario, but that concern has lessened. This explains why current pricing doesn’t lean heavily towards significant rate cuts. So far, the Bank has shown caution instead of urgency. No specific path is guaranteed, and none of this week’s statements should be seen as a fixed plan. Regarding general price pressures, the recent strength of the Canadian dollar against the US dollar makes imported goods cheaper, which may help ease inflation. This could reduce the urgency for policymakers to take action. However, just because the CAD is doing well now doesn’t mean it will continue to do so, especially if sentiment about the US dollar changes. Officials want to return to a single scenario in their forward guidance, which may happen by July. This should provide more clarity after a time of mixed forecasts. It likely indicates confidence that the worst outcomes are becoming less likely. The tone this month has been fairly optimistic, with participants feeling more balanced.

Wildfires and Economic Activity

Wildfires have also been mentioned as impacting economic activity. It is understood that these events disrupt output, transportation, and consumer behavior. While such disruptions may raise prices in the short term, they typically don’t lead to long-term inflation. However, we are mindful of potential second-round effects, especially if rebuilding creates extra demand later. The USD/CAD has now dropped to levels not seen since October, suggesting current market preferences and possibly indicating differences in interest rates between both countries. As yields change, the currency usually follows. Currently, markets estimate the chance of a rate cut in July to be around 40%. That’s enough to consider but not high enough to rely on. The Bank’s latest statements haven’t shifted strongly towards easing; instead, they suggest a wait-and-see strategy. For those monitoring derivative pricing, the lack of strong direction means implied volatility may stay relatively low in the near future. It might be wise to balance positions. Instead of chasing short-term trends, focusing on options that cover both flat and steeper rate curves could be more effective. Upcoming data in the next two weeks will likely lead to adjustments in pricing, not reversals. Create your live VT Markets account and start trading now.

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The latest US weekly oil report shows that crude oil inventories dropped by 4,304K barrels, which is much more than the expected decrease of 1,035K barrels. Last week, inventories went down by 2,795K barrels. Gasoline stocks increased by 5,219K barrels, far exceeding the predicted rise of 609K barrels. Distillate inventories also went up by 4,230K barrels, compared to the expected increase of 1,018K barrels.

API Data Summary

Recent API data revealed a 3,300K barrel decrease in crude oil inventories. Gasoline stocks rose by 4,700K barrels, while distillate inventories grew by 760K barrels. Initially, oil prices fell after this news but quickly recovered. Prices are currently up by about 40 cents. These figures suggest a tighter crude oil market than expected, despite an accumulation of refined product stocks. In summary, crude oil is being drawn from storage more quickly, indicating solid demand from refiners and abroad. Conversely, gasoline and distillate stocks have increased more than anticipated, suggesting refineries are producing more than the current consumption levels. The American Petroleum Institute had already indicated a similar decline in crude, so the market’s initial dip before rebounding shows the overall mood’s complexity. Traders reacted quickly to stockpile changes, but the data presented mixed signals: the crude draw pulls prices one way, while large builds in products push them back. The slight price rebound of about 40 cents indicates that traders are still responding to these mixed signals.

EIA Figures and Market Response

EIA figures provide a deeper analysis and emphasize the significant build in products. This situation isn’t ideal for traders expecting tighter balances, as product demand seems sluggish. This may cap how much crude can rise independently. We also need to consider the time of year. With the US driving season approaching, fuel consumption typically increases. This makes the gasoline stock build surprising and possibly short-lived, suggesting refiners may have overestimated their production needs. Given recent market reactions and inventory trends, the future looks uncertain. We are seeing tightening in refined products, but rising product stocks could reverse some of those gains. If refined product inventories grow faster than crude inventories fall, it could lead to a period where crack spreads weaken. Timing trades around refinery maintenance could help maximize profits if refining throughput decreases. Refined product yields are crucial now. If margins stay under pressure, refiners may have less incentive to operate at full capacity. This could reduce the rate of crude drawdowns and shift market dynamics in the coming days. The market sentiment is not strongly leaning in one direction, which may explain the sluggish reaction. However, underlying volatility could be a concern. The opposing trends between crude and product inventories suggest potential price dislocations, especially for near-term contracts that react quickly to storage conditions. Unless there are sudden changes in production policy or geopolitical events, we expect these dislocations to adjust before trades start to look further out. In the coming days, we should pay close attention to refinery utilization rates and how they change in monthly reports. These figures will provide insights into future drawdown rates and the sustainability of current consumption trends. Watching for any deviations in implied product demand may give early signals for market positioning. Also, assessing backwardation or contango in response to next week’s metrics could clarify how traders view short-term physical supply tightness. Create your live VT Markets account and start trading now.

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**Efforts For A Ceasefire** The conflict continues with no signs of improvement, as tensions hinder any chance for peace. Both sides remain active militarily, complicating the situation. Recent developments have damaged ceasefire efforts. Given the current circumstances, reaching an agreement seems unlikely. The international community is closely monitoring the situation. Various global actors are concerned and keep a watchful eye on changes. This scenario shows that diplomatic progress has halted while military pressure increases. With Putin expressing doubts about a ceasefire, it’s clear that the opportunity for peaceful talks is shrinking. Recent military actions have added new energy to the conflict, moving it further from any chance of disengagement. Both sides maintain consistent operational activity—not idle, but with persistent intent. Diplomatic efforts have made little headway, not for lack of trying, but due to diminished trust. Global observers are present, yet their influence has not changed the situation on the ground. **Trading Derivatives Under Geopolitical Tensions** For those trading derivatives, especially in metals and energy, this environment calls for precision. We are not just reacting to headlines—changes in natural gas contracts are already showing shifts in supply risk sentiment. European dependencies are delicately balanced. With supply routes previously altered at great expense, new uncertainties can pressure prices again, especially if local inventories drop below expected levels. Let’s be clear: the stalled diplomatic efforts suggest volatility might not only continue but could increase. Oil duration spreads indicate that near-term prices are high, reflecting recent buying activity. This isn’t merely hedging; it shows traders are uncertain about the future. We’ve observed similar trends in precious metals. Gold contracts, particularly those further out, have started to show signs of tail risk pricing. While not yet severe, the premium is present. This suggests we should brace for unpredictable markets rather than making directional bets. Movement without follow-through can trigger stop losses, as we’ve seen after past conflict-related news. Equity index volatility, indicated by protective put skew, remains relatively calm—this could be a lagging sign. The market isn’t ignoring risks; instead, capital is slow to move due to limited alternatives. This creates opportunities for sudden swings if circumstances change quickly. In the coming weeks, we need to be selective. We are adjusting our exposure with more short-term positioning than usual—focusing on specific scenarios instead of long-range predictions. Monitoring FX options pricing has provided insights into risk transfer—Eastern European currencies signal nervous positioning with high implied volatility, unlike stable central European majors, which could change rapidly. We should not assume today’s relative calm means stability. It is more an operational pause for reassessment, not a strategic retreat. This situation won’t likely fade from our screens anytime soon. Tactical timing, without being lulled by calmness, will be more beneficial than trying to predict future trends in the coming sessions. Create your live VT Markets account and start trading now.

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The ISM services index for May 2025 was recorded at 49.9, which is lower than the expected 52.0 and the previous 51.6. Key statistics include a rise in prices paid to 68.7, new orders falling to 46.4, and employment improving to 50.7. Business activity remained steady at 50.0, supplier deliveries increased to 52.5, and inventories dropped to 49.7. The backlog of orders decreased to 43.4, new export orders slightly fell to 48.5, while imports rose to 48.2. Inventory sentiment improved to 62.9. Despite some market worries, consumer spending remains stable, and government spending continues. The US dollar faced selling pressure, and Treasury yields fell by 2-4 basis points. The USD/JPY pair dropped by 80 pips, with 50 pips of this decline linked to these figures.

Mixed Sectoral Responses

The report mentioned challenges such as tariff changes affecting supply chains, uncertainties in purchasing due to budget cuts, and price increases in transportation. Some sectors noted steady business conditions and slight growth, especially in consumer demand for retail trade. The report highlights mixed responses across various sectors amid economic uncertainties. The unexpected drop in the services index for May, falling just below the neutral mark of 50.0, indicates a slight slowdown in non-manufacturing activities. Key indicators suggest a moderation rather than growth. Traders should view this data as a sign of pressures building in consumer industries and supplier networks. The decline in the headline figure, alongside falling new orders and stable business activity, implies that overall demand may be weakening more than expected. Pricing data has surprised by showing an increase, with prices paid rising significantly. This indicates that input costs continue to climb despite a general slowdown in activities, suggesting inflationary pressures are still present in this part of the economy. This rise in costs cannot be overlooked. It suggests that businesses are dealing with higher expenses while new order volumes are dropping—creating an unpredictable situation for their profit margins, especially in logistics-heavy sectors.

Employment and Trade Flows

The increase in employment might seem positive—showing modest growth—but when paired with a declining backlog and lower inventory growth, it complicates the picture. A stronger labor market can indicate ongoing demand, but in this scenario, it may reflect previous hiring that hasn’t yet adjusted to the slowing pace. New export orders and imports, while both below 50, indicate a cautious approach to trade, with neither showing major drops or increases. The minor retreat in Treasury yields appears more like a recalibration instead of panic. This slight move toward safety after a weaker report aligns with uncertainty rather than outright decline. The slight drop in the USD against the yen also seems influenced by adjusted growth expectations. It’s essential to pay attention to qualitative comments regarding specific challenges. There are mentions of tariff-related pressures creating unpredictability in procurement. Increases in transport costs may continue to affect logistics-heavy industries. Despite reports of steady consumer demand in areas like retail trade, these positives do not offset the overall weakness. Budget constraints are also highlighted, particularly from organizations facing internal cuts. This can affect purchasing schedules and volumes, which may soon influence inventory strategies. These data do not imply a recession yet, but they do signal warning signs. Activity is leveling off where it once was growing. We are closely monitoring when businesses shift from absorbing costs to passing them on, which may occur soon. Create your live VT Markets account and start trading now.

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