The European session shows little activity, with Italian Industrial Production data being the only event, which typically does not significantly impact the market or the European Central Bank’s decisions.
In the American session, the US Producer Price Index (PPI) report is due. Core PPI year-on-year is anticipated at 3.5% compared to the previous 3.7%, while the month-on-month figure is expected at 0.3% versus the prior 0.9%. Market attention often turns to the components affecting the Personal Consumption Expenditures (PCE).
Previous Report Reaction
Previously, the PPI report exceeded expectations largely due to investment services, leading to an initial strong market reaction that later subsided. The Consumer Price Index (CPI), due to be released alongside Jobless Claims, may prove more influential.
A higher-than-expected PPI result could lead to cautious trading ahead of the CPI, whereas a lower report might enhance risk sentiment.
We are watching the US Producer Price Index today, with expectations for core inflation to cool to 3.5% year-over-year. For derivative traders, this is less about taking a major directional bet and more about managing risk ahead of tomorrow’s more important CPI report. An unexpected number could cause a short-term spike in volatility, but the market’s bigger move is likely reserved for Thursday.
Market Volatility and Trader Sentiment
We’ve seen the VIX, a measure of expected market volatility, creep up from 15 to over 19 in the past two weeks, showing growing unease. After last month’s official PCE data in August 2025 showed core inflation ticking back up to 3.9%, traders have become extremely sensitive to any new information. This means even a slight deviation in today’s PPI components could significantly reprice short-dated options.
Given this uncertainty, we are seeing traders buy weekly put options on the S&P 500 as a hedge against a hawkish surprise. This is very similar to the trading patterns we observed back in 2022, when any hot inflation data could spark a sharp sell-off. A soft PPI report today might cheapen these protective puts, offering a better entry price for hedging before the CPI and Jobless Claims data.
For those anticipating a large market swing but unsure of the direction, strategies like straddles are also gaining traction. A surprisingly hot PPI number would keep the market defensive and coiled for a big reaction to tomorrow’s CPI. Conversely, a weak report could easily trigger a relief rally, making a direct bet on a volatility spike a viable play.
Looking at the coming weeks, the pricing in Fed Funds futures now suggests a 60% probability of another rate hike at the October 2025 FOMC meeting. This is a big jump from the 35% chance we saw priced in just last month. A strong PPI today would reinforce this hawkish sentiment and could add pressure to interest rate futures.
