Insights 
VT 
Dow Jones futures rose 0.16% to approximately 47,000 in European trading hours. S&P 500 futures increased by 0.26%, and Nasdaq 100 futures climbed 0.41%, reaching above 25,350.
These movements occurred after it was confirmed that US President Trump will meet Chinese leader Xi Jinping in South Korea. The meeting is scheduled for October 30th during the Asia-Pacific Economic Cooperation Summit.
Market Caution Ahead of Us Inflation Report
Market caution persists as traders await the US inflation report, expected to indicate ongoing high prices. This comes just before a potential Federal Reserve rate cut, with a 98% chance for October and 92% for December, according to the CME FedWatch Tool.
On Thursday, the Dow Jones increased by 0.31%, the S&P 500 by 0.58%, and the Nasdaq 100 by 0.89%, driven by tech stocks. Intel’s pre-market shares rose nearly 8% following strong third-quarter sales reports, while Target and Rivian edged up 0.25% and 0.31%, respectively.
The US government shutdown has persisted for 24 days, making it the second-longest lapse in federal funding history. The Senate did not pass the GOP-backed stopgap bill for the 12th time on Wednesday.
With the Dow Jones futures trading near 47,000, the market is clearly pricing in some optimism ahead of the Trump-Xi meeting on October 30. We must remember that similar meetings during the 2018-2019 trade war often produced short-term relief rallies, even if long-term deals were elusive. This suggests that call options on the Dow or S&P 500 with short-term expiries could be a way to position for a positive headline.
However, a major risk is the upcoming US Consumer Price Index (CPI) report. Economists are forecasting a year-over-year CPI of 4.1% for September, a figure that remains stubbornly high and well above the Federal Reserve’s target. A higher-than-expected inflation number could easily overpower any positive trade news, making put options a necessary hedge against a market downturn.
Fed Rate Cut & Resulting Market Volatility
The situation is complicated by the Fed, which is expected to cut interest rates next week despite high inflation. This indicates the Fed is more worried about the economic drag from the 24-day government shutdown, which some analysts estimate is shaving 0.2% off quarterly GDP growth for every week it continues. This focus on growth over inflation could support equities, but it also creates policy uncertainty.
Given these conflicting signals, we should expect a spike in volatility. The CBOE Volatility Index (VIX), currently trading around 18, may not fully reflect the risk of a dual shock from the CPI data and the trade meeting outcome. A straddle or strangle option strategy could be useful, as it profits from a big move in either direction without us needing to predict the specific outcome.
We are also watching the technology sector, which has been leading the market higher. Intel’s strong pre-market performance shows the underlying strength, and since tech is highly sensitive to US-China relations, options on the Nasdaq 100 index may offer a more direct way to play the outcome of the APEC summit. The 25,350 level for Nasdaq futures will be a key area to watch.
