The US Chicago PMI eased to 56.7 in June, coming in below the 58.1 consensus forecast. The reading remained above the 50 threshold that separates expansion from contraction, implying continued growth in regional business activity, albeit at a slower pace than expected.<\/p>\n\n
The miss versus expectations may temper perceptions of momentum in the Midwest manufacturing and services pipeline. Markets will likely set it alongside other near-term indicators to gauge whether broader activity is cooling or merely normalising after earlier strength.<\/p>\n\n
The Chicago PMI miss suggests the manufacturing sector is cooling faster than anticipated. This points to a potential slowdown in broader economic growth as we head into the third quarter. We see this as a clear signal to adjust our strategies for the coming weeks.<\/p>\n\n
We’ve seen this cooling trend elsewhere, as the national ISM Manufacturing index also dipped to 51.3 last month, showing a broader slowdown. This aligns with the most recent jobs report, which saw wage growth slow to a 3.8% annual rate, easing pressure on the Federal Reserve. This pattern of moderating growth and inflation strengthens our view.<\/p>\n\n
Given this data, we are increasing our downside protection on equity portfolios. We are buying put options on the S&P 500 (SPY) with expirations in late July and August. This move hedges against a potential market dip as investors digest a potentially slowing economy.<\/p>\n\n
We anticipate a rise in market volatility from its currently subdued levels. We are therefore taking long positions in VIX futures, as market uncertainty typically increases when growth expectations are revised downwards. Historically, even minor economic surprises like this have preceded short-term spikes in the VIX, as seen in the fourth quarter of 2025.<\/p>\n\n
The probability of a Federal Reserve rate hike in the third quarter is now diminished. We are positioning for lower yields by going long 10-year Treasury note futures (ZN). The federal funds futures market is now pricing in less than a 20% chance of a rate hike by September, down from 45% just last week.<\/p>\n\n
A less aggressive Fed will likely put pressure on the US dollar. We are initiating short positions on the U.S. Dollar Index (DXY) against a basket of major currencies. We see particular strength in the Euro, as the European Central Bank has signaled a more steady policy path.<\/p>\n\n
The slowdown in manufacturing directly impacts demand for industrial commodities. We are reducing our exposure to copper futures. Conversely, we view gold as an attractive safe-haven asset in this environment of economic uncertainty and potentially lower real yields.<\/p>\n\n\n\n