US retail sales excluding autos rose 0.8% month on month in May, exceeding the 0.5% consensus forecast. The outturn points to firmer underlying demand than expected, based on the ex-autos gauge.<\/p>\n
This stronger-than-expected retail sales number shows the consumer is still very healthy. This gives the Federal Reserve less reason to consider cutting interest rates in the near future. As a result, we expect interest rate volatility to pick up.<\/p>\n
We are watching for traders to sell interest rate futures, betting that yields will rise or stay elevated for longer. Following this report, the probability of a rate cut by the Fed’s September meeting has dropped to below 30%, a significant shift from last month. This data, combined with the recent Core PCE inflation figure holding firm at 2.8%, reinforces the view that the Fed will remain patient.<\/p>\n
For equity indexes, this creates a headwind as the market reprices the “higher for longer” interest rate environment. We believe purchasing put options on major indices like the S&P 500 or Nasdaq-100 is a prudent way to hedge against a potential pullback over the next few weeks. The VIX, currently near a low of 13, is likely undervalued and buying VIX call options could be an effective way to position for an increase in market turbulence.<\/p>\n
At the sector level, we anticipate a divergence in performance. Traders should consider buying call options on consumer discretionary stocks that directly benefit from this strong spending. Conversely, rate-sensitive sectors like real estate (REITs) and high-growth technology stocks could underperform, making put options on their respective ETFs an attractive pair trade.<\/p>\n
In currency markets, a more cautious Federal Reserve will likely strengthen the US dollar. The Dollar Index (DXY) is already up 0.4% today and we see potential for it to re-test its yearly highs. We are looking at options strategies that benefit from a rising dollar against currencies whose central banks are signaling rate cuts, such as the Euro.<\/p>\n","protected":false},"excerpt":{"rendered":"
May ex-auto US retail sales rose 0.8%, reducing near-term Fed cut odds and raising volatility, dollar strength.<\/p>\n","protected":false},"author":87,"featured_media":52962,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-52758","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t