Insights 
VT 
In June, U.S. core PCE inflation increased by 0.3% month-over-month, aligning with expectations and marking the largest monthly rise since February. The annual rate remained at 2.8%, slightly above the anticipated 2.7%.
The data underscores the Federal Reserve’s concerns as inflation approaches 3%, driven by tariff-related price increases in goods. Service-sector inflation, notably in financial services, adds to this inflationary pressure. The Fed views tariff-related inflation as temporary, yet the consecutive 0.3% monthly increases indicate ongoing inflation volatility, potentially impacting future rate cuts. The likelihood of a September rate cut has decreased from 65% to 39%, with rates expected to remain at 4.25–4.50%.
US Jobs and Stock Market Data
U.S. jobs data showed mixed signals, with better-than-anticipated claims data contrasting with higher announced layoffs. U.S. stock markets opened higher due to gains in Meta and Microsoft, but closed lower, with NASDAQ decreasing by 7.23 points. Dow fell by 333.30 points, and S&P declined by 23.51 points.
Copper prices fell steeply after new tariffs on semi-finished copper products were announced, not affecting refined copper. The price dropped by $1.23 or 22.05%. Crude oil decreased by $0.64 to $69.35, gold increased by $13.89 to $3,289.71, and Bitcoin dropped by $1,336 to $116,499.
President Trump announced plans for a Mexican trade deal, a potential 35% tariff on Canadian imports, secondary tariffs on Russian oil imports, and pressed 17 pharma companies to lower prices.
With core inflation holding stubbornly at 2.8%, we are seeing the market rapidly price out a September rate cut. Looking back at the 2022-2023 cycle, the Fed stayed hawkish longer than many expected, a pattern that could repeat now. This suggests positioning for higher-for-longer rates through options on Treasury ETFs or selling short-term rate futures ahead of tomorrow’s jobs report.
Volatility and Market Strategy
Yesterday’s reversal in the NASDAQ, where it erased a 327-point gain, is a significant warning sign for equities. We’ve seen the VIX, a key measure of market fear, jump from the mid-teens to over 22 in the last two weeks, signaling rising uncertainty. Traders should consider buying puts on broad market indices like the S&P 500 to hedge against further downside, as tech earnings alone are not supporting the market.
The massive 22% drop in copper prices is a direct result of new 50% tariffs on semi-finished products. However, the exemption for raw copper, like cathodes traded on the LME which only fell 3% yesterday, creates a distinct opportunity. This suggests a spread trade, going long raw copper futures while buying puts on industrial companies heavily reliant on finished copper imports.
Heightened trade tensions, including the threat of a 35% tariff on Canada, increase the risk of currency volatility. This makes buying call options on the USD/CAD pair an attractive hedge against a weakening Canadian dollar. Furthermore, the plan for secondary sanctions on Russian oil importers could tighten global supply, suggesting that yesterday’s dip in crude prices may be short-lived and that call options on oil are now worth considering.
