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":103,"featured_media":16971,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[9,11,100,109,97],"class_list":["post-55299","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-dollar","tag-indices","tag-inflation","tag-markets","tag-volatility"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/55299","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=55299"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/55299\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16971"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=55299"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=55299"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=55299"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}