In September, China will announce new policies to encourage spending on services. This comes after recent data showed a slowdown in performance. The latest statistics reveal that industrial profits fell by 1.5% year-over-year in July, improving from a 4.3% decline the month before.

Shifting Government Focus

China’s upcoming policies to promote services consumption create a promising trading opportunity. This move makes sense considering the recent -1.5% drop in industrial profits in July. It highlights that the government is shifting its focus toward consumer-driven growth. The data aligns with trends we’ve noticed since late 2024. Although China’s official Services PMI was 53.5 in July 2025, indicating expansion, growth is slowing, and consumer confidence is fragile. The planned stimulus is essential not just due to one month’s poor data, but to maintain support for the main growth driver of the economy. In anticipation of the September announcement, we should invest in consumer-focused Chinese stocks. This could involve buying call options on tech giants and e-commerce companies listed on the Hang Seng Tech Index, or through ETFs like KWEB. Historically, similar announcements in 2023 and 2024 led to significant but often brief rallies in these stocks.

Market Strategy Implications

The implied volatility of these assets is already rising, signaling that the market is pricing in a policy change. By acting now, we can benefit from the expected announcement before the cost of volatility increases. This strategy allows us to take advantage of the government’s support initiative. On the other hand, the ongoing decline in industrial profits suggests a negative outlook for industrial commodities. This data implies that demand for materials such as iron ore and copper may stay low. We should maintain short positions in related futures contracts to protect our portfolio against the weaknesses of China’s traditional industries. The future of the yuan is uncertain, presenting an opportunity to trade currency volatility. A strong stimulus could strengthen the yuan, but if the announcement disappoints, the USD/CNH pair might rise. We can use option straddles on the currency to prepare for a significant move in either direction once the policy details are made public. Create your live VT Markets account and start trading now.

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Sinolink Securities has raised its margin deposit ratio for new financing contracts from 80% to 100%. This makes it the first broker in China to change its requirements during the ongoing market upswing. This decision comes as mutual funds start reducing new orders after recent big gains. Chinese stocks have gained over $1 trillion in value this past month, with the Shanghai Composite reaching a ten-year high.

Market Performance and Economic Concerns

The CSI 300 index has increased by more than 20%. However, weak economic data is making some investors cautious. The rise of the margin deposit ratio to 100% shows that at least one major broker believes the current market rally is too high and supported by excessive borrowing. The fact that mutual funds are limiting new orders further suggests that the phase of “easy money” might be ending. The gap between the market’s strong performance and the sluggish economy is widening. The CSI 300 index has surged over 20% in just a month, but data from July 2025 indicates that industrial production only grew by 3.5%, which was below expectations. This mismatch implies that the rally may be driven more by investor sentiment than by solid economic fundamentals, raising the chances of a significant market correction.

Risk Management Strategies

This situation indicates an impending increase in market volatility. The CBOE China ETF Volatility Index (VXFXI) has already risen by 15% this past week, moving away from its recent lows as traders factor in more risk. Hence, now is the time to think about buying protection, like purchasing put options on broad market ETFs such as the iShares FTSE A50 China Index ETF. This scenario mirrors what happened before the market correction in mid-2015, when a rapid, leverage-driven rally detached from economic reality before a big pullback. We should use that past experience to guide our risk management in the current market. Considering these signals, we should focus on strategies that could benefit from a market pullback or slowdown. Buying out-of-the-money puts on the CSI 300 index can be a cost-effective way to hedge long positions. Alternatively, initiating bear call spreads allows us to profit from a sideways or downward movement while managing defined risk. Create your live VT Markets account and start trading now.

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Goldman Sachs predicts that Brent crude prices will fall to the low USD 50s by late 2026. This forecast stems from a global oil market that is expected to have more supply than demand. The expected supply will exceed demand by an average of 1.8 million barrels per day from Q4 2025 to Q4 2026. This surplus is likely to increase global oil inventories by nearly 800 million barrels by the end of 2026.

Major Global Oil Market Surplus

We are seeing a significant oil market surplus starting in the fourth quarter of this year. This imbalance between supply and demand is expected to push Brent crude prices down into the low $50 range by late 2026. Derivative traders should prepare for a period of lower prices in the next 18 months. The current supply situation looks heavy. U.S. shale production has been strong, with July 2025 output exceeding 13.5 million barrels per day, the highest in several years. Some OPEC+ countries are also starting to go over their production limits, indicating potential issues within the group. On the demand side, signals are weakening, especially with recent manufacturing data from China falling short of expectations. This has led to unexpected inventory increases in the U.S., with the latest weekly report showing an increase of over 2 million barrels when a decrease was expected. These signs point to storage filling up ahead of the anticipated surplus.

Developing Trends and Market Strategies

We’ve seen this situation before, similar to the oil price crash of 2014-2016. At that time, a surge in non-OPEC supply created a significant inventory glut that kept prices low for a long period. The forecast of nearly 800 million barrels in new inventory by late 2026 suggests we could face another prolonged downturn. Traders should think about taking bearish positions in the next few weeks using contracts that extend into 2026. Buying long-dated put options on Brent for mid-2026 expiries could provide protection against falling prices with limited risk. Another strategy could be to sell call credit spreads to benefit from both declining prices and the effects of time decay. Create your live VT Markets account and start trading now.

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China’s industrial profits in July dropped by 1.5% compared to last year, but this was an improvement from the previous decline of 4.3%. For the year so far, profits are down 1.7%, which is a bit better than the earlier 1.8% decrease. These numbers reflect the ongoing impact of tariffs and persistent deflation at the wholesale level.

Industrial Profit and Deflationary Pressures

While the July improvement in industrial profits is encouraging, profits are still down 1.7% for the year. This slight recovery comes amid ongoing wholesale deflation, which is putting pressure on profit margins. The bigger issue of weak domestic demand remains unresolved. This trend corresponds with the July Producer Price Index (PPI), which showed a 2.2% year-over-year decline. Flash manufacturing PMI data for August indicates that factory prices continue to fall at a similar rate, highlighting the stubborn deflationary environment. Thus, any optimism from profit data needs to be approached with caution. For traders on indices like the FTSE A50, this suggests a stable market may exist in the next few weeks. Since profits are no longer rapidly declining but are restricted by weak pricing power, selling out-of-the-money options for premium income seems like a smart strategy. We don’t expect significant price movements until the next round of macroeconomic data is released.

Commodities and Currency Watch

This cautious outlook also applies to industrial commodities, especially copper and iron ore. We don’t foresee a drastic drop in demand like we feared in the second quarter of 2025, but there’s limited upside for futures prices. Any price increases stemming from government stimulus discussions should be seen as opportunities to sell. We are also monitoring the Australian dollar, which serves as a reliable indicator of China’s industrial sector. After the People’s Bank of China reduced the reserve requirement ratio by 25 basis points last week to boost the economy, further easing is likely on the horizon. This difference in policies may cap any gains in AUD/USD. The main external factor to watch remains the tariff situation, with new trade talks set for mid-September. This development poses a significant risk, making it wise to hedge any positions. Buying inexpensive, short-dated volatility on currency pairs like USD/CNH could be a safe choice to guard against unexpected outcomes. Create your live VT Markets account and start trading now.

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Importance of July CPI Data

The unexpected rise in Australian inflation is a big deal for us. Today’s CPI data for July showed inflation increasing to 2.8% year-over-year, far exceeding expectations. The core measure also rose to 2.7%. This challenges the belief that the Reserve Bank of Australia (RBA) would keep interest rates stable, with many thinking rate cuts would start in 2026. This report has quickly changed expectations for interest rates ahead of the RBA meeting on September 30. Previously, overnight index swaps suggested almost no chance of a rate hike, but now there’s a small possibility. The Australian dollar rose slightly to 0.6503, indicating that the market is waiting for more confirmation before taking significant action. We should view this inflation data alongside a strong labor market, where the unemployment rate has remained just below 4% for most of 2025. The combination of rising prices and a tight job market puts the RBA in a tough spot, raising the stakes for their next policy decision.

Impact of August CPI Release

However, this monthly data is not complete and mainly reflects goods inflation. The August CPI release on September 24 will be key, offering better insights into services inflation just before the RBA meeting. This creates a time of uncertainty and suggests that volatility might be underestimated. Looking back at 2022-2023, we saw the RBA react strongly to unexpected inflation, even as global trends softened. This history indicates that the board will take this new data seriously, making the August CPI a crucial event for potential policy changes. Consequently, derivative positioning should focus on the chance of a sharp move in late September. In the coming weeks, traders should think about buying volatility on the Australian dollar and short-term interest rates. Strategies like purchasing straddles or strangles on AUD/USD options expiring after the September 24 data release could be effective. The market is currently balancing a surprisingly high inflation signal against known data limitations, creating a perfect scenario for a volatility-driven approach. Create your live VT Markets account and start trading now.

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In the second quarter of 2025, Australia saw a 3.0% increase in construction work done. This was much higher than the expected 0.8% rise and is the best growth since early 2023. The construction work data includes both residential and non-residential buildings, as well as engineering projects. Previous reports showed no growth, making this quarter’s results stand out.

Australian Consumer Price Index

At the same time, the Australian monthly Consumer Price Index (CPI) drew attention. In July 2025, the CPI climbed 2.8% compared to the same month last year, exceeding the expected 2.3% increase. CPI figures are important because they signal higher inflation than anticipated in the country, guiding economic forecasts and potential changes in policy. The unexpected rise in July’s inflation to 2.8% is a key focus. This significantly surpasses predictions and brings inflation closer to the top limit of the Reserve Bank’s target range. Thus, the Reserve Bank of Australia (RBA) can no longer take a wait-and-see approach.

Interest Rate Decisions Ahead

The strong construction results, with a 3.0% increase, support a more aggressive stance. This is the best growth we have seen since the first quarter of 2023, indicating that the economy is stronger than previously thought. This gives the central bank a reason to raise interest rates without worrying about an immediate economic setback. We should adjust interest rate expectations to reflect a higher likelihood of a hike at the September meeting. With the cash rate at 4.35%, the market has quickly adapted to this new outlook. Overnight Index Swaps now suggest there is over a 75% chance of a 25-basis-point increase, a significant rise from the 20% chance indicated yesterday. This change in rate expectations is positive for the Australian dollar, as higher yields attract foreign investment. The currency has already risen past 0.6750 against the U.S. dollar due to this news. There are opportunities to use options to position for further Australian dollar strength against currencies with more dovish central banks. For equity markets, we foresee challenges as borrowing costs are likely to increase. This situation mirrors the difficulties faced by the ASX 200 during the aggressive interest rate hikes that ended in 2024. We might consider buying put options to hedge portfolios against a potential market drop in the coming weeks. Create your live VT Markets account and start trading now.

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The People’s Bank of China (PBOC) manages the daily midpoint for the yuan, also known as the renminbi or RMB. China uses a managed floating exchange rate system that allows the yuan to fluctuate within a range of +/- 2% around this central rate. Recently, the PBOC set the midpoint at 7.1108, stronger than the estimated rate of 7.1559. This is the strongest position for the yuan since November last year. Additionally, the PBOC injected 379.9 billion yuan through 7-day reverse repos at an interest rate of 1.40%.

Net Drain in the Financial System

On this day, 616 billion yuan will mature, resulting in a net drain of 236.1 billion yuan from the financial system. Today, August 27, 2025, the PBOC has clearly indicated its intention by setting the yuan’s reference rate significantly stronger than expected. This strong fixing signals that the authorities will not accept a rapid drop in the currency’s value. We can expect a period of stability in the USD/CNY exchange rate. This move aligns with last month’s economic data. In July 2025, industrial production grew by 3.1%, below the expected 3.5%, and capital outflow indicators showed nearly $20 billion leaving the country. A strong currency fixing helps to address these negative trends and reduce speculative bets against the yuan.

Implications for Traders and Speculators

For options traders, this implies that the implied volatility in USD/CNY may be too high in the short term. Last week, the 1-month implied volatility index for the offshore yuan (CNH) reached 6.8%, a high not seen since early 2025. A strategy like selling straddles or strangles to earn premium might be effective, as the central bank is likely to maintain a tighter trading range soon. Traders holding long positions in USD/CNY should reconsider this approach, as opposing a strong central bank can be risky. Instead, looking for relative value trades, such as buying other Asian currencies against the dollar, could be wise. A stable yuan often benefits the whole region, just as a weakening yuan in late 2024 harmed the Korean won and Thai baht. The current net drainage of liquidity, despite the strong fixing, is a strategic move to raise the cost of shorting the yuan. By making overnight funding in the offshore CNH market more expensive, it deters speculators and reinforces the central bank’s message. This strategy proved effective during the turbulent times of 2023 and 2024 in curbing depreciation pressures. Create your live VT Markets account and start trading now.

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The Westpac-Melbourne Institute Leading Index, which predicts future economic activity, showed a small rise in its growth rate. It increased to 0.12% in July from 0.01% in June, suggesting a slow and steady economic recovery. However, this recovery faces challenges due to falling commodity prices and a stronger Australian dollar. The job market also appears weaker, with other sectors lacking clear direction.

Australian Dollar Stability

The exchange rate of the Australian dollar to the US dollar remains steady at about 0.6494. The latest data from the leading index confirms our assessment of a stalled Australian economy. This slow recovery barely shows any movement, with the growth rate just above zero. This means we expect economic activity to stay below its long-term average for the rest of 2025. A significant challenge is the drop in commodity prices, which continues to affect the economy. This month, iron ore prices fell below $100 per tonne due to renewed concerns about demand from China. This decline impacts our national income and limits any potential strength in the Australian dollar. Moreover, the labor market is softening, which weakens a key support for the economy. The unemployment rate for July, released in mid-August 2025, rose to 4.2%, confirming a cooling trend. This slowdown in job growth will likely keep wage increases in check and consumer spending low.

Interest Rate Outlook

As inflation moves closer to the Reserve Bank of Australia’s (RBA) target range, with a Q2 figure of 3.1%, there is little urgency for the central bank to raise interest rates from the current 3.85%. We expect the RBA to maintain its cautious approach, which may limit any gains for the AUD/USD, currently hovering around 0.6450. Thus, selling out-of-the-money call options on the AUD/USD to collect premium seems wise, as a significant price rally seems unlikely. Looking back, this stagnant price behavior is similar to the range-bound market we experienced throughout most of 2023, when economic data lacked clarity. The current implied volatility on AUD options is low, indicating the market expects this sideways trend to continue. This low-volatility situation supports strategies that benefit from time decay and limited price changes, like short straddles. Create your live VT Markets account and start trading now.

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Crypto fund manager Canary Capital has filed to create a spot ETF that would be the first on Wall Street directly linked to the meme coin, TRUMP, named after President Trump. Previous filings this year suggested obtaining exposure through Cayman subsidiaries and U.S. Treasuries, but Canary’s new application follows the Securities Act of 1933 for full and direct exposure to the token. If approved, the Canary TRUMP Coin ETF would keep a reserve of TRUMP tokens under strict custody regulations, likely in the United States. This would be a regulatory milestone for a meme coin ETF. News of the potential TRUMP coin ETF has sparked significant speculation in the market. The token’s price jumped over 45% to $21.50 in the last 24 hours, fueled solely by this filing. This indicates that traders can expect high volatility in the coming weeks. Derivative markets are also reacting, with implied volatility on TRUMP options reaching over 200%. Traders should brace for sharp price movements, whether up or down, due to rumors or official updates from regulators. Strategies that benefit from volatility, like long straddles, may be worthwhile, although they come with a high cost. We should consider how the market reacted to spot Bitcoin ETF approvals in early 2024. In that case, prices rose due to anticipation but then dropped significantly right after the official approval. This history suggests that trading ahead of the decision may yield more profit than the event itself. The perpetual futures market is another important area to monitor, with open interest doubling to over $500 million. We expect funding rates to rise as long positions dominate, making it costly to stay bullish. This provides traders an opportunity to earn high funding fees by taking a contrarian short position, as long as they manage the risk of further price jumps.

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The People’s Bank of China (PBOC) sets a daily midpoint for the yuan (RMB) using a managed floating exchange rate system. This allows the currency to move within a set range, currently at +/- 2% of the midpoint. Each morning, the PBOC calculates the yuan’s midpoint against various currencies, with a primary focus on the US dollar. This calculation takes into account market factors such as supply and demand, economic indicators, and global currency movements. The midpoint serves as a reference for trading that day.

Yuan Trading Band

The yuan can fluctuate within a specific range around the midpoint, which is currently +/- 2%. This means the yuan can appreciate or depreciate by up to 2% from the midpoint in a single trading day. The PBOC may adjust this range based on economic conditions and policy needs. If the yuan approaches the limits of this trading band or experiences significant volatility, the PBOC may step in. They can buy or sell yuan to manage its value and maintain stability. The PBOC is expected to set the USD/CNY reference rate at 7.1559, indicating an official recognition of the yuan’s recent weakness. This suggests that the authorities are open to guiding the currency lower in a controlled way. For traders, this reinforces the strategy of expecting a stronger dollar against the yuan. This potential reference rate allows the spot rate to drop further within its daily trading band. A midpoint of 7.1559 means the yuan could weaken up to 7.2990 before reaching the 2% upper limit of its band. Traders might consider buying USD/CNY call options with strike prices between 7.25 and 7.30 to take advantage of this expected move.

Economic Outlook and Trade Strategy

The economic outlook supports this perspective, as China’s export growth figures for the second quarter of 2025 fell short of expectations. Meanwhile, the U.S. Federal Reserve has kept its interest rates high this year, continuing the policy differences that started in 2022. The interest rate gap, with U.S. rates at 5.25% and China’s benchmark at 3.45%, continues to attract investment towards the dollar. However, we should be careful about how fast the yuan might depreciate. In 2023 and 2024, the central bank often set the daily fix stronger than market predictions to avoid drastic changes. This history indicates that while the yuan is heading down, the decline will be managed and gradual. Given the chance of intervention to slow the depreciation, implied volatility in the options market may not rise significantly. Therefore, while buying options for directional trading seems wise, we should be cautious about overspending. Structured products that benefit from a slow, steady increase in USD/CNY—rather than a sudden surge—could be a better strategy. Create your live VT Markets account and start trading now.

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