Germany’s August ZEW release is due, with consensus looking for an improvement in the current-situation gauge as the economy stays resilient through the energy shock and fiscal easing supports activity. The UK labour market report is also scheduled, with average weekly earnings expected to cool from above 4% and unemployment seen staying below 5%; markets price one BoE rate rise by year-end, while the note expects the Bank Rate to remain unchanged. In the US, July industrial and manufacturing production figures are expected to be slightly firmer than June, alongside housing data.
Brent crude pushed above USD91/bbl as Middle East tensions escalated after a 60-day MoU between the US and Iran expired, while tanker normalisation through the Strait of Hormuz stalled and risks rose near Bab el-Mandeb. US August sentiment gauges beat expectations: the NY Fed Empire index rose to 20.6 from 15.6 versus 11 expected, and the NAHB index to 35 from 34 versus 33 expected. Sweden’s Origo inflation expectations moved up to 1.97% from 1.83% at one year and to 2.07% from 2.02% at two years. China’s July data weakened, with retail sales at 0.6% y/y (1.5% consensus; 1.0% prior), industrial production at 4.5% y/y (5.0%; 5.3%), new home prices down 0.18% m/m, and property investment down close to 20% y/y year-to-date. Equities fell, with the S&P 500 down 0.5% and Stoxx 600 down 0.2%, while EUR/USD briefly topped 1.16 before slipping below 1.1580 and 30-year US Treasury yields hit their highest since 2007.
—Yield Curves, Commodities, and Portfolio Strategies
With US 30-year Treasury yields surging toward the 5% mark—levels not seen consistently since 2007—we advise derivative traders to position for a steeper yield curve. Utilizing payer swaptions or shorting long-term Treasury bond futures can help hedge against this bearish steepening pressure. As global yields face upward pressure from heavy debt issuance and sticky energy costs, securing protection against extended duration sell-offs remains a priority.
Geopolitical instability in the Middle East has pushed Brent crude back above $91 per barrel, threatening to reignite inflationary supply shocks. We recommend buying out-of-the-money call options on Brent or utilizing bull call spreads to capture further upside. This strategy protects portfolios against sudden spikes in shipping disruptions near the Strait of Hormuz and Bab el-Mandeb.
In the currency markets, we see a prime opportunity to play the commodity strength by going long on the Norwegian Krone (NOK) against the Euro. EUR/NOK has recently hovered near the 11.00 level, making long NOK put options attractive as high oil prices support Norway’s terms of trade. Meanwhile, traders should watch the 1.1580 level on EUR/USD, where short-term straddles can exploit the currency pair’s sudden volatility.
—Global Weakness and Defensive Equity Posture
Weak economic data from China, where retail sales slowed to just 0.6% and property investment fell near 20%, suggests global growth remains highly uneven. To cushion against a broader equity pullback, we suggest buying put options on the S&P 500 or Stoxx 600, especially as rising energy costs squeeze consumer staples. This defensive positioning will help buffer portfolios against a potential correction driven by high risk-free rates and sluggish demand in Asia.
