Insights 
VT 
Tech Sector Awaits Earnings Data
The tech sector awaits further earnings data from major companies before advancing in the AI-fueled rally. There are concerns over supply shocks after China imposed export controls on vital minerals. President Trump has threatened a 155% tariff on China starting November 1 if trade disagreements remain unresolved.
The US Consumer Price Index (CPI) is monitored to measure inflation tendencies. It is released monthly by the US Department of Labor Statistics, with a high CPI seen as positive for the US Dollar. The Federal Reserve aims to maintain stable prices and employment, with current inflation rates posing challenges post-pandemic.
Oil prices increased above $57.50 amid easing trade tensions, impacting currency movements. The GBP/USD continued to decline, while USD/JPY rose with Takaichi’s appointment in Japan. NZD/USD remained steady, EUR/USD slipped, and the Canadian dollar showed volatility after inflation data.
The Dow’s surge to 47,000 is being driven by industrial and consumer names, creating a clear split with the hesitant tech sector. This divergence suggests considering strategies that benefit from sector rotation, especially with geopolitical uncertainty on the horizon. We are seeing the CBOE Volatility Index (VIX) trading near a low of 15, but options pricing suggests a sharp rise is expected around the November 1st tariff deadline.
Inflation and Federal Reserve Impact
Given the strong earnings from companies like General Motors and 3M, we see continued momentum in the industrial sector. The most recent ISM Manufacturing PMI report confirmed this expansion, coming in at a solid 52.5. Traders could look at buying call options on the Industrial Select Sector SPDR Fund (XLI) to ride this wave of “old economy” strength.
The technology sector faces significant headwinds from potential tariffs and China’s control over rare earth minerals, creating downside risk. With key earnings from the “Magnificent Seven” approaching, implied volatility is climbing on options for the Invesco QQQ Trust (QQQ). We believe protective put positions or bear call spreads could be prudent to hedge against a negative surprise from earnings or trade talks.
Persistent inflation keeps the Federal Reserve in a hawkish mode, which will continue to weigh on rate-sensitive assets. The futures market, tracked by the CME FedWatch Tool, is now pricing in an 85% probability of another rate hike before the end of the year. This supports a strong dollar, making bearish strategies on currency pairs like the EUR/USD attractive as it tests 1.16.
The uncertainty surrounding the US-China trade talks is bolstering the US dollar as a safe-haven asset. We have seen this reflected in the USD/JPY exchange rate pushing toward 152.00, a level not seen since we looked at it back in the early 1990s. This dollar strength is likely to continue putting pressure on other major currencies in the coming weeks.
