The ISM non-manufacturing PMI for the US fell to 50.1, just above the critical 50 mark, indicating marginal expansion. Seven out of ten components dropped, with imports and new export orders sliding into contraction due to tariff challenges.
Major US stock indices closed lower, with the Dow Jones dropping 0.14% to 44,111.74, S&P falling 0.49% to 6,299.19, and NASDAQ losing 0.65% to 20,916.55. Crude oil futures settled at $65.16, with Citi predicting gold to hit $3,500 per ounce within three months.
Us Treasury Auction and Yield Movements
US Treasury auctioned $58 billion in 3-year notes at a 3.669% yield. Yield movements included a rise in the 2-year to 3.724% and the 5-year to 3.776%; the 30-year yield fell to 4.777%.
President Trump discussed various topics, criticising certain survey data as outdated. He touched upon topics like employment numbers, trade tariffs, and foreign policy, claiming influence over energy prices and international trade commitments.
The USD was mixed, with the EURUSD moving lower after talks of potential EU tariffs. The discussion also involved potential Federal Reserve actions, with a possibility of a rate cut by UBS in September.
We are seeing the ISM Services index barely clinging to growth at 50.1, a significant drop from levels we saw earlier this year. This suggests the main engine of the U.S. economy is sputtering, creating downside risk for the stock market. Derivative traders might look at buying puts on the S&P 500 or the Nasdaq as a way to position for a potential slide in the coming weeks.
Yield Curve and Market Sentiment
The yield curve is flattening, with the 2-year yield rising while the 30-year falls, signaling a conflict in the market. Traders are grappling with persistent inflation fears while a slowdown looms, a situation we last saw in the volatile 2023-2024 period. This environment makes options on interest rate futures particularly interesting for capturing volatility without picking a clear direction.
We must take the renewed tariff threats seriously, especially the talk of a 15-20% minimum tariff on EU goods and rates of up to 250% on pharmaceuticals. These are not just words; they are specific threats that could disrupt supply chains that are still fragile from the post-pandemic era. Protective puts on pharmaceutical ETFs (XPH) and semiconductor ETFs (SOXX) should be considered.
The forecast for gold to hit $3,500 an ounce in the next three months is exceptionally bullish and aligns with growing economic and geopolitical uncertainty. A jump of that magnitude from current levels would be reminiscent of the sharp rally we saw in 2020. Buying long-dated call options on gold futures or related ETFs like GLD could offer significant upside if this prediction unfolds.
The U.S. dollar is mixed, but the euro looks particularly vulnerable given the direct tariff threats against the EU. Shorting the EUR/USD pair through futures or options seems like a logical hedge against escalating trade tensions. The currency pair has been sensitive to trade news, falling sharply during the initial tariff rounds back in the 2018-2019 period.
While the Atlanta Fed’s GDPNow estimate rose, we must focus on the forward-looking survey data, which is weakening fast. Business activity, new orders, and employment all lost momentum, with respondent feedback explicitly blaming tariffs for delayed projects. This suggests weakness could become more widespread, favoring bearish positions on cyclical sectors like industrials and materials.
