Insights 
VT 
Market Overview
US-EU discussions indicate potential auto tariff relief in the upcoming weeks. Walmart’s earnings report fell short, affecting its shares in pre-market trading. Various statements from Fed officials suggest a patient approach to interest rate adjustments, with the BOJ potentially increasing rates to 0.75% by year-end. France’s August flash services PMI stood at 49.7, surpassing expectations of 48.5, while Germany’s manufacturing PMI was at 49.9 against an anticipated 48.8. The UK’s services PMI outperformed forecasts, recorded at 53.6 instead of the expected 51.8, though its CBI trends total orders were worse than expected at -33.
The USD remains steady, with the JPY underperforming. European equities and S&P 500 futures are down by 0.3%. US 10-year yields increased by 2 basis points to 4.316%. Gold dropped by 0.4%, now priced at $3,333.05, while WTI crude rose slightly by 0.5% to $63.01. Bitcoin saw a decline of 1.1%, valued at $113,116.
Despite favourable PMI figures from major European economies, these have not spurred market movements. Euro and pound currencies remain virtually unchanged against the dollar. USD/JPY experienced mild movement, reflecting Fed commentary. Overall, major currencies show little drama as markets await further US data and an address from Fed Chair Powell. In equities, European stocks linger in the negative, echoing US futures, with Walmart’s earnings miss exacerbating the decline. Gold and cryptocurrencies continue their downward trajectory, with earlier uplifting trends diminishing.
Fed Chair Speech
Given the cautious market tone, we see elevated risk heading into Fed Chair Powell’s speech tomorrow. This points towards buying short-term volatility through options like straddles on the S&P 500, as any surprisingly hawkish or dovish tilt could spark a significant move. Once Powell speaks, we expect this implied volatility to decrease, making it a key event to trade around.
The commentary from Fed officials, combined with the US 10-year yield holding above 4.3%, reinforces the “higher for longer” interest rate narrative. This continues to favor a strong US dollar, particularly against the Japanese yen, as the Bank of Japan lags in its hiking cycle. We could look at buying USD/JPY call options, but we must remain cautious as the pair approaches the 150 level, a point where the Ministry of Finance has intervened in the past, notably in late 2022.
In equity markets, the Walmart earnings miss is a serious warning sign about the health of the US consumer. This concern is magnified by recent data showing that US credit card delinquencies rose to a 15-year high in the second quarter of 2025. This suggests it is prudent to establish bearish positions on consumer discretionary ETFs using put options or put spreads.
Conversely, the potential relief on US-EU auto tariffs presents a specific opportunity in an otherwise sluggish market. We could consider purchasing longer-dated call options on European automakers, as a formal announcement in the coming weeks would likely provide a significant boost to their stock prices. We saw similar trade-related uncertainty weigh on these names back in the 2018-2019 period, and a resolution would be a major relief.
The improved PMI data from France and Germany helps solidify the view that the European Central Bank will remain on hold, which likely keeps the euro in a tight range against the dollar. This stable environment is suitable for options strategies that profit from low volatility, such as selling iron condors on the EUR/USD pair. This approach would benefit from the currency pair remaining range-bound while we collect the premium.
