Tensions in the Middle East continued to underpin crude, with both sides claiming control of the Strait of Hormuz and vessel flows constrained as President Trump relies on economic sanctions and a naval blockade. With no agreement in view, Brent crude held near US$90 a barrel.
US CPI matched forecasts, with disinflation led by energy and petrol while airfares, used cars and computers added pressure; inflation remains above the Fed’s target after five years. Rate-hike pricing for September eased, though tightening expectations were not removed, putting more weight on August CPI and on remarks from Fed chair Kevin Warsh at Jackson Hole. Attention then turns to July US PPI, expected to cool at both headline and core levels year on year, after which AUD and NZD fell against the USD while JPY moves stayed muted despite government support for a BoJ hike in September or October. In rates, the curve repriced as September tightening odds shifted from about 5 bps to roughly 16 bps over the past month, while US Treasuries bull-steepened and equities firmed, leaving the Dow Jones unchanged as South Korea’s KOSPI remained in bull market territory.
Derivative Strategies For Crude, Rates, And FX
We recommend that derivative traders leverage the ongoing Middle East friction by positioning in Brent crude options. With Brent holding near $90 a barrel and historical precedent showing that Hormuz disruptions can spike energy implied volatility above 40%, buying out-of-the-money call options or utilizing bull call spreads is highly attractive. This allows us to capture sudden upside spikes while capping our downside risk if a diplomatic breakthrough unexpectedly occurs.
With US CPI coming in flat and the July PPI report releasing today, we should prepare for immediate fixed-income volatility by using Treasury futures and SOFR options. Given that the market is still pricing in tightening ahead of Kevin Warsh’s speech at Jackson Hole, we suggest implementing bear-steepener options strategies. Historically, when inflation remains sticky above the central bank’s target, long-term yields tend to rise faster, making puts on long-bond futures a smart defensive play.
In the currency markets, we see a prime opportunity to buy Japanese Yen call options. While USD/JPY is currently quiet, the options market is underpricing the 16-basis-point hike projected for September. If the Bank of Japan confirms this hawkish shift, the Yen could rapidly appreciate, echoing the historic 12% surge seen during past monetary policy adjustments.
Opportunities In Equity Derivatives
For equity derivatives, we should focus on writing put options on AI infrastructure names to collect premium, supported by yesterday’s strong tech earnings. Since South Korea’s KOSPI has officially entered a bull market, buying call options on East Asian equity indices is a strong momentum play. This balanced approach lets us profit from steady tech growth while hedging against broader macroeconomic pauses.
