US durable goods orders excluding defence rose to 1.3% in July, accelerating from 0.3% in the prior reading. The increase points to firmer demand for long-lasting manufactured items outside the defence sector.
Implications For Federal Reserve Policy And Fixed Income Traders
The unexpected surge in July’s non-defense durable goods orders to 1.3% indicates that US business spending is far more resilient than previously feared. Coming on the heels of a solid 2.8% GDP growth rate in the second quarter of 2026, this manufacturing strength suggests the domestic economy is not cooling down quickly. We believe this data will force the Federal Reserve to rethink aggressive interest rate cuts in their upcoming September meeting.
For interest rate derivative traders, we recommend shifting strategies toward a “higher-for-longer” yield environment. Specifically, we should look to sell December 2026 SOFR futures or purchase put options on 10-year Treasury note futures to capitalize on rising yields. This robust demand signal reduces the probability of a 50-basis-point rate cut, which was heavily priced into the fed funds futures market just weeks ago.
FX And Equity Option Strategy Recommendations
In the foreign exchange market, the dollar is poised to strengthen further against major currencies. With Eurozone manufacturing activity remaining weak—as shown by the recent August PMI reading of 45.6—the divergence in economic health is glaring. We suggest buying short-term call options on the US Dollar Index (DXY) or target-dated put options on the EUR/USD pair to capture this momentum.
Equity options traders should pivot away from rate-sensitive tech stocks and target industrial sectors that directly benefit from factory demand. Buying call options on the Industrial Select Sector SPDR Fund (XLI) offers a direct way to play this renewed manufacturing vigor. At the same time, we should consider writing out-of-the-money puts on large-cap industrial players to collect steady premium as market volatility subsides.
