US industrial production data will be released, expecting no change at +0.0% compared to 0.3% last month. Capacity utilisation is anticipated to slightly decrease to 77.5 from 77.6 previously. Manufacturing output is forecasted to decline by -0.1% after a previous increase of +0.1%.
Additional data, published at 10 AM, includes US business inventories for June, expected to rise by 0.2% compared to no change previously. University of Michigan sentiment for August is forecasted at 62.0, marginally up from 61.7. Current conditions are expected to be 67.9 versus 68.0, and expectations are forecasted at 56.5 compared to 57.7.
US Stock Market Moves
US stocks show mixed results, with the Dow up due to Warren Buffett’s Berkshire Hathaway increasing its UNH shares stake. This caused UNH shares to increase by 10% premarket, contributing to a 266-point rise in the Dow. The S&P index shows a slight gain of 6.75 points, while the NASDAQ is down by -30.69 points in premarket activity.
The US dollar has fluctuated post-data release. The EURUSD pair reached a high of 1.1699, dipped to 1.1672, and rose again to 1.1701. The 1.1696 – 1.1703 zone is a key swing area for further movements.
We see the flat industrial production figures as a direct result of the Federal Reserve’s rate-hiking cycle that peaked in late 2024. This cooling effect is what we have been anticipating, signaling the economy is losing momentum. The expected decline in manufacturing output is a key indicator that corporate earnings in this sector may face pressure in the coming quarters.
The persistently low consumer sentiment, now at 62.0, confirms that households are feeling the pinch from higher rates and slowing job growth we saw in the last jobs report. We look at this as a signal to consider protective put options on consumer discretionary sector ETFs. With the VIX currently trading near 18, which is below its historical average, buying VIX call options appears to be an inexpensive way to hedge against a potential market downturn.
Market Sentiment and Strategy
We should not be misled by the Dow’s strength, as it is heavily skewed by a single non-economic event in UNH shares. The weakness in the NASDAQ is more telling, reflecting concerns that growth-oriented tech companies will struggle in a slowing economy. This divergence suggests a ‘risk-off’ sentiment is building, where traders should be cautious about broad market upside.
The dollar’s inability to hold its gains reflects a growing belief that the Fed’s next move will be a rate cut, perhaps as early as the first quarter of 2026. Looking back at the patterns from 2019, similar economic softening preceded a policy pivot from the central bank. Therefore, we view options strategies that bet on further dollar weakness, such as call options on the EURUSD, as having a favorable risk-to-reward profile.
