Deutsche Bank notes that attention is on tariff developments as the August 12 deadline regarding US-China levies approaches. This date is considered pivotal for trade relations, potentially affecting market sentiment and risk appetite based on any decision to pause or end the levies.
The bank identifies the US consumer price index (CPI) report for July, due out on Tuesday, as a key economic indicator to watch. Their economists predict the headline CPI will rise by +0.1% month-on-month, a slowdown from June’s +0.3% increase, with a year-on-year deceleration as well.
July CPI Expectations
Core CPI is expected to increase by +0.21% month-on-month, consistent with June’s +0.2% growth. The data will be scrutinised for insights into the inflation outlook and possible changes in Federal Reserve policy.
The US CPI release is scheduled for Tuesday at 1230 GMT or 0830 US Eastern time.
In the coming weeks, we see a critical moment approaching with two major events set for tomorrow, August 12, 2025. The deadline for the US-China tariff pause and the release of July’s inflation data create a setup for significant market movement. Derivative traders should be bracing for a potential spike in volatility.
We are watching the US Consumer Price Index (CPI) report closely for signs of slowing inflation. Expectations are for a small 0.1% monthly increase, with core inflation forecast at 0.21%. After core inflation proved stubborn, hovering around 3.1% in the second quarter of 2025, a softer number could signal to the Federal Reserve that its policy is working.
Potential Market Reactions
Given these back-to-back events, traders are likely positioning for a large price swing in either direction. The VIX, a key measure of market fear, has already crept up to 18.5 in recent days, showing nervousness ahead of these catalysts. Options strategies that profit from volatility, such as straddles on the SPX, are likely gaining attention.
The decision on tariffs remains a major wild card that could easily overshadow the inflation data. We remember how market volatility spiked during the 2018-2019 trade disputes, with sudden tariff announcements causing sharp drops in equity futures. A failure to extend the current pause would likely trigger a similar risk-off reaction.
Therefore, traders might consider buying put options on trade-sensitive sectors like semiconductors or industrials as a hedge. These positions would offer protection if trade talks sour and new levies are announced. Conversely, a positive resolution could see a sharp rally, making short-term call options attractive for those willing to take the risk.
