Markets are waiting for Germany’s August flash inflation print ahead of the euro area release, with headline HICP seen at 3.1% y/y versus 2.8% previously, as energy feeds through while underlying momentum is watched. In Asia, China’s private RatingDog manufacturing PMI follows an official NBS reading that rose to 49.8 in August (cons: 49.6; prior: 49.2), while non-manufacturing PMI stayed at 49.0; Japan’s final S&P Global manufacturing PMI is expected to confirm 55.1 versus 54.5 in July. The week’s focal point is Friday’s US jobs report, with nonfarm payrolls forecast at +65k and unemployment steady at 4.1%, alongside euro area inflation on Tuesday and Bank of Canada and Reserve Bank of New Zealand decisions on Wednesday.
Geopolitical risk lifted oil after the US struck two rocket launchers on Iran’s Larak Island and Iran fired missiles at Jordan that were reportedly intercepted; Brent moved above USD 90/bbl. In the US, Fed messaging pushed pricing towards September being close to a coin-flip, while the BLS flagged an early NFP benchmark revision of -79k for April 2025 to March 2026. In Europe, the Commission’s sentiment index rose to 98.4 (cons: 97.5; prior: 97.1); France HICP ticked up to 2.7% y/y (cons: 2.6%; prior: 2.4%) as core ran near 0.1% m/m, Spain HICP rose to 4.5% y/y (cons: 4.6%; prior: 3.9%) while core eased to 2.8% from 3.0%, and French Q2 GDP was revised to 0.0% q/q from 0.2%. Sweden reported Q2 GDP at 3.3% y/y (cons: 2.5%) and 1.6% q/q, with consumption up 0.9% q/q and investment up 3.5% q/q, while the NIER indicator rose to 105.1 (prior: 104.6) and manufacturing stood at 107.1; Norway’s NAV unemployment held at 2.1% s.a. and July retail sales fell 0.7% m/m, with the trend at -1.3% 3M/3M (prior: -1.4%). Risk assets softened after Jackson Hole, with the S&P 500 down 0.3%, Nasdaq off 0.5% and Russell 2000 lower by 1.4%, while the VIX fell to 14.4 and US futures were down 0.3%.
Derivative and Energy Strategies Amid Geopolitical Risks
We recommend that derivative traders position for heightened energy volatility by purchasing near-term call options on Brent crude. The recent military exchange in the Strait of Hormuz, which channels about 20% of the world’s petroleum liquids, has already pushed Brent past the critical USD 90 per barrel threshold. Historically, geopolitical spikes of this nature tend to sharply drive up implied volatility, making long straddles or bull call spreads highly attractive right now.
Opportunities in Currency and Interest Rate Markets
In the currency markets, we see a compelling opportunity to buy EUR/USD put options ahead of the upcoming central bank decisions. Fed Chairman Warsh’s hawkish tone at Jackson Hole has pushed the market probability of a September rate hike to nearly a coin-flip, heavily supporting the dollar. This hawkish shift, contrasted with signs of cooling Eurozone underlying inflation, should continue to pressure the euro downward in the coming weeks.
We also suggest trading short-duration interest rate futures to hedge against a potential hawkish surprise in Friday’s US jobs report. While we expect a modest nonfarm payroll addition of 65,000, any figure exceeding this estimate could lock in a September rate hike and flatten the US yield curve further. Recent historical trends show that resilient labor markets consistently fuel hawkish policy expectations, which will keep front-end Treasury yields elevated.
Finally, we advise traders to look at Eurozone interest rate swaps as the market prices in a final 25-basis-point rate hike from the ECB in September. Although consumer inflation expectations have risen, declining selling price expectations among European firms suggest we are nearing the absolute peak of the ECB’s tightening cycle. Capturing the spread between hawkish US expectations and a peaking Eurozone cycle through options remains our preferred play.
