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Bessent expresses optimism about talks with China, the US economy, and a possible Budapest summit
US Treasury Chief Bessent announced that the US and China have had positive talks. He noted that the current relationship is working well.
Bessent is hopeful that the US economy will improve in the fourth quarter, even though there are some economic distribution issues.
Markets expect a 25 basis point rate cut by the RBNZ, affecting future inflation and policy guidance
Markets expect a 25 basis point rate cut, which could lower the Reserve Bank of New Zealand’s Official Cash Rate to 3.00%. Current OIS pricing shows a 92% chance of this reduction.
The RBNZ has hinted at this easing for some time, so this anticipated cut is not surprising. The focus now shifts to the bank’s guidance on future rate decisions.
The May Projection And Its Implications
In May, the RBNZ forecasted the OCR would be around 2.9% by the end of the year, suggesting two more cuts, including this week’s. They predicted the annual CPI would drop to 2.4% by year-end, then further to 1.9% in early 2026. However, recent inflation indicators, like rising food prices, are causing expectations to rise. Some analysts now predict inflation could hit around 3.0% by year-end or early next year, complicating the RBNZ’s plans. Markets are now pricing nearly 40 basis points in rate cuts by the end of the year. If the RBNZ cuts rates but signals no further reductions, volatility may occur. Some participants expect the OCR to lower further to allow for more cuts, making a stable OCR appear more aggressive. As of August 20, 2025, a 25 basis point cut from the Reserve Bank of New Zealand seems nearly certain. The derivatives market places the probability of this cut at over 90%, bringing the Official Cash Rate to 3.00%. The key focus will be the bank’s guidance on future moves.Recent Data And Inflation Dynamics
The RBNZ’s own forecasts from May indicated another cut should happen later this year, but new data presents a different picture. Recent official data from July showed the Q2 annual CPI at 2.9%, higher than the RBNZ’s year-end projection of 2.4%. This persistent inflation makes further rate cuts more challenging. Inflation pressure is evident in recent figures, with the food price index for July reporting a 4.5% annual increase, the highest since late 2023. If inflation is now expected to approach 3.0% by year-end, the rationale for further easing weakens significantly. This creates a potential conflict between market expectations and the economic reality facing the RBNZ. The simplest trigger for volatility would be if the bank implements the anticipated cut but then indicates it is finished, raising its rate projections with no further easing this year. Many traders seem to expect a more dovish message, anticipating room for additional cuts. Therefore, an unchanged rate path could be viewed as a surprising aggressive stance. Traders in derivatives may want to position themselves for a policy divergence between New Zealand and Australia. The Reserve Bank of Australia recently delivered its first 25 basis point cut, bringing its cash rate to 4.10%. If the RBNZ pauses today while the RBA continues to cut, the New Zealand dollar is likely to strengthen against the Australian dollar. This view is backed by recent fundamental data, which showed a modest rebound in New Zealand’s Q2 GDP while Australia’s growth has slowed. Additionally, prices for New Zealand’s key dairy exports have firmed up, while the price for Australian iron ore has weakened. These trends in growth and trade support a potential decline in the AUD/NZD currency pair. Looking back from 2025, we see that the RBNZ was a leader in raising rates aggressively in 2022 and 2023 to control inflation. They might soon be one of the first major central banks to finish their easing cycle, contrasting with neighbors just starting to lower rates. Create your live VT Markets account and start trading now.Today’s economic calendar includes data releases from Japan, China, the UK, Europe, and the US.
The Asia-Pacific session today includes important updates like Japanese Machine Orders and trade statistics, followed by the Chinese Loan Prime Rate (LPR). The Reserve Bank of New Zealand is set to announce updates at 12:00 AEST, with a press conference following at 13:00 AEST.
In early European trading, the United Kingdom will release its inflation data for July. We can also expect final Consumer Price Index (CPI) figures for Europe.
United States Session Highlights
During the U.S. session, the Economic Information Administration (EIA) will release data alongside a 20-year bond auction. We’ll also see the release of the Federal Open Market Committee (FOMC) meeting minutes. For derivative traders, the FOMC minutes will be critical. They may provide clues about interest rate changes as we near the year’s end. The latest U.S. CPI data for July 2025 shows inflation steady at 2.8%. The market is split on whether there will be another rate cut before Christmas, increasing volatility in interest rate futures and S&P 500 options. In Europe, inflation data is vital for trading EUR and GBP derivatives. UK inflation remains high, with the ONS reporting it at 3.1% in June 2025, prompting the Bank of England to adopt a cautious stance—unlike the European Central Bank. Notably, the ECB’s first rate cut in June 2024 initiated a policy divergence that is still relevant today.Focus on the Loan Prime Rate Decision
We are closely monitoring China’s Loan Prime Rate decision as it will influence sentiment around commodities and currencies like the Australian dollar. Following a disappointing 4.5% GDP growth in Q2 2025, another rate cut is widely expected to boost the economy. Any delay could lead to a risk-off sentiment, making put options on mining stocks and the Aussie dollar more appealing. The EIA data will provide short-term trading opportunities in the energy sector, which reacts quickly to inventory levels. WTI crude oil has held steady around $85 a barrel for several weeks, so a significant increase or decrease in inventory could lead to a breakout. The 20-year bond auction will also help gauge long-term inflation expectations, affecting everything from Treasury futures to swap spreads. Create your live VT Markets account and start trading now.ANZ expects RBNZ’s rate cut scenarios to influence NZD movement based on economic outlook and probabilities
The Reserve Bank of New Zealand is expected to lower the rate by 25 basis points. There is a 60% chance that the official cash rate (OCR) will decrease by 10-15 basis points. Although the Performance Services Index is still contracting, it has shown slight improvement recently due to high-frequency activity data and PMIs. This might provide a small positive impact on the NZD, but any changes to the OCR compared to market pricing are likely to be minimal.
There is also a 25% chance that the rate cut may reduce the OCR by more than 20 basis points, which would be a more dovish outcome than the current market predicts. The RBNZ’s comments about risks from weaker domestic data in Q2 will be important, as they might cause the NZD to drop by up to 1% during the day.
Unchanged OCR Track
The least likely scenario, with a 15% chance, suggests that the OCR could stay the same even after a cut. If this happens, the NZDUSD could rise by up to 1%, seen as a more hawkish approach. However, sustaining these gains would depend on positive market sentiment in the following trading sessions. After the Reserve Bank of New Zealand’s decision on August 15, which matched the most likely scenario, the market has fully accounted for the 25-basis-point rate cut. The NZDUSD showed only a slight reaction because traders widely expected this move. The key focus for the coming weeks will be the RBNZ’s forward guidance and upcoming data, not just the rate cut. We are currently awaiting new data to guide the next steps, especially since the Performance Services Index is still contracting. The latest Global Dairy Trade auction on August 19 showed a modest rise of 1.8% in whole milk powder prices, providing some support but not indicating a significant economic recovery. With quarterly inflation data from July steady at 3.6%, the outlook for further rate cuts is now less clear.Strategies for Traders
This uncertainty suggests that traders in derivatives should consider strategies that benefit from increased volatility in the NZDUSD. Buying options, like straddles or strangles, can allow traders to profit from significant price movements in either direction. This could be a smart strategy to adopt ahead of next month’s employment figures. In late 2023, we noted a similar scenario when the market was divided on the RBNZ’s next step, leading implied volatility on NZDUSD options to jump from 9% to over 12% in just a few weeks. This history indicates that even after a clear rate decision, the following period can become unpredictable as the market looks for its next direction. Traders should prepare for these potential price swings. The reduced official cash rate track may diminish the attraction of the Kiwi dollar for carry trades, a popular strategy this year. Those with long NZD positions might want to hedge their risk by buying NZDUSD put options. This offers protection against potential declines if weaker domestic data in Q2 causes further depreciation of the currency. Create your live VT Markets account and start trading now.Technology encounters challenges as safe havens gain popularity, while commodities and equities drop due to risk aversion
Stocks fell as big tech companies struggled. The S&P 500 dropped 0.57% to close at 6,412, while the Nasdaq 100 lost 1.39%, ending at 23,385. In contrast, the Dow was nearly flat with a slight increase of 0.02%, and small-cap stocks fell 0.77%. Defensive sectors like staples, utilities, and healthcare stayed strong, even as questions arose about AI investment returns.
In the foreign exchange market, safe haven currencies like the USD, CHF, and JPY gained value. The yen performed best, boosted by falling US yields. Meanwhile, high beta currencies such as the AUD, NZD, and CAD struggled. This risk-averse mood also affected commodities; WTI crude dropped by USD 0.93 to USD 61.77 per barrel, while Brent crude fell USD 0.81 to USD 65.79 per barrel.
The Bond Market Update
The bond market had a good session, with treasuries rallying in both Europe and the US, which helped drive yields down. The US 10-year yield was around 4.30%, as all eyes were on the upcoming Jackson Hole symposium. Gold and silver prices fell with the stronger US dollar. Given the cautious atmosphere, it might be wise to hedge or take bearish positions on tech stocks. The Nasdaq 100 dropped below 23,400, driven by major players like Nvidia, indicating that the sector is vulnerable after its forward P/E ratio exceeded 35—a level not seen since the downturn in 2022. We could consider buying put options on the QQQ ETF to guard against more losses in the coming weeks. With the Jackson Hole meeting coming up, we could see an increase in market volatility. Implied volatility on September options for the S&P 500 has already risen to 18%, and any hawkish surprise from the Fed could push it much higher, similar to reactions after Powell’s 2022 speech. Buying VIX call options or setting up straddles on the SPX might be smart moves to manage this event risk.The US Dollar and Treasury Yields
The US dollar’s strength against high-beta currencies like the AUD and NZD looks likely to last. CFTC data from last week showed that speculative net-long positions on the dollar have risen for four consecutive weeks, indicating strong trader confidence. We can act on this by shorting AUD/USD futures or buying call options on the UUP dollar index ETF. Treasuries are also seeing strong demand, pushing the 10-year yield down to about 4.30%. This move toward safety may continue if equity weakness persists. We expect that if the S&P 500 tests the 6,400 level, there will be increased demand for bonds, making long positions in Treasury futures or call options on the TLT ETF appealing. Create your live VT Markets account and start trading now.The USD strengthened against major currencies despite falling yields and stock market momentum.
The US dollar closed higher against most major currencies, except for a slight drop against the JPY. Here are the percentage changes: EUR +0.13%, JPY -0.15%, GBP +0.11%, CHF +0.05%, CAD +0.46%, AUD +0.59%, and NZD +0.47%. The NZD weakened ahead of the expected rate cut from the Reserve Bank of New Zealand. In Canada, July’s Consumer Price Index (CPI) rose by 0.3% monthly, but the annual rate dropped to 1.7%.
US housing data was mixed: housing starts increased to 1.428 million, while building permits were lower at 1.354 million. Although some data looks positive, the focus remains on non-farm payrolls and the consumer price index. If the Fed cuts rates too soon, the strength in housing could raise inflation risks.
Geopolitical News
In geopolitical news, Trump indicated that Europe wants to end the Ukraine war but excluded US troops from being involved. There are rumors of a potential meeting between Putin and Zelensky, with the US helping to facilitate talks. Anticipated actions include tariffs on India for its Russian oil purchases and stricter export controls on Nvidia’s products to China. Additionally, the Reserve Bank of New Zealand is likely to cut its cash rate by 25 basis points to 3.0%. US stocks experienced declines: the Dow rose by just 0.02%, while the S&P fell by 0.59%, the NASDAQ dropped by 1.46%, and the Russell 2000 decreased by 0.78%. US Treasury yields also fell, with the 2-year at 3.754%, 5-year at 3.827%, 10-year at 4.310%, and 30-year at 4.911%.USD Strength Against Commodity Currencies
The US dollar is gaining strength against commodity currencies, creating a good opportunity. With Canadian inflation down to 1.7% and a rate cut expected from the Reserve Bank of New Zealand, the gap in policies between the US and these countries is widening. We should consider buying call options on USD/CAD. Historical data from 2022-2023 shows that this pair rose significantly when the Bank of Canada halted rate hikes while the Fed remained aggressive. The mixed US housing data, along with tomorrow’s Fed minutes and Chair Powell’s speech at Jackson Hole on Friday, points to high uncertainty ahead. This environment is perfect for volatility-based strategies; therefore, we are looking to buy straddle options on the S&P 500. The VIX is around 18, but we’ve seen it spike over 20% during critical Fed announcements before. Geopolitical developments could quickly overshadow economic data, especially regarding discussions about a peace settlement in Ukraine. Any breakthrough could significantly boost the Euro and reduce the US dollar’s appeal as a safe haven. We should prepare for this shift by holding some long EUR/USD call options as a tactical play for a sudden positive outcome. We are cautious about the technology sector due to the NASDAQ’s 1.46% drop and the risk of tighter export controls on Nvidia. The semiconductor industry has led the market but is very sensitive to US-China trade tensions, like the trade disputes we observed from 2018 to 2019. We are purchasing put options on a group of semiconductor stocks as a hedge against a potential downturn in the upcoming weeks. The bond market is sending mixed signals, with yields falling despite the dollar’s strength. This suggests that bond traders foresee an economic slowdown that could force the Fed to adopt a more dovish stance than it currently shows. This is supported by a relatively flat yield curve; the 2-year yield at 3.75% is only slightly lower than the 10-year at 4.31%, which often indicates a slow economic period ahead. Create your live VT Markets account and start trading now.Private oil inventory survey shows a crude draw of 2.4 million barrels, contrary to predictions
A recent survey by the American Petroleum Institute (API) showed a drop in crude oil inventory by 2.4 million barrels. This is greater than the expected decrease of 1.2 million barrels. The survey gathers information from oil storage facilities and companies across the United States.
The survey also noted an increase of 0.5 million barrels in distillates and a rise of 1.0 million barrels in gasoline stocks. This private survey comes before the official data from the U.S. Energy Information Administration (EIA), which will be released on Wednesday morning.
U.S. Oil Market Dynamics
The data from the API survey and the upcoming EIA report often show different results. These surveys provide distinct insights into the U.S. oil market. The API’s report indicating a crude oil inventory drop of 2.4 million barrels is double what was expected and suggests strong demand or low supply. We’ll be monitoring the government’s EIA report tomorrow; if it confirms this trend, prices are likely to rise. This unexpected drop in inventory is significant, especially as we approach the end of the summer driving season in August 2025. Strong demand indicates that fuel consumption is more robust than previously thought, especially given the weaker demand seen in parts of the summer of 2024. This trend could help support prices as we move into autumn. West Texas Intermediate crude is trading close to $85 per barrel, and this data adds to an already tight market. U.S. commercial crude inventories are about 3% below the five-year average, which has helped maintain prices throughout the summer. A substantial drop confirmed by the EIA would highlight this supply shortfall even more.Hurricane Season Risks
In the next few weeks, we should factor in a higher risk related to hurricane season, which is reaching its peak. The National Oceanic and Atmospheric Administration has predicted an active 2025 season, meaning any storm in the Gulf of Mexico could disrupt production and refining, leading to sharp price increases. This unexpected inventory drop reduces the supply cushion available to manage such disruptions. For those trading derivatives, this situation favors strategies that benefit from price increases or volatility. Buying short-term call options on WTI or Brent futures is a straightforward way to speculate on a price increase after the EIA report or from a future weather-related disruption. While higher implied volatility will raise option prices, the potential for sharp price movements justifies this cost. We must also consider broader economic data and what central banks are saying. Strong consumer demand for fuel may complicate the Federal Reserve’s efforts to control inflation, possibly delaying anticipated interest rate cuts. A more cautious approach from the Fed could limit price increases, setting a cap on oil prices despite positive inventory data. Create your live VT Markets account and start trading now.Pressure on stocks from declines in major indices, while some sectors showed positive performance
Stocks ended the day mostly flat, with major indices facing some pressure. The S&P and NASDAQ dipped, while the Dow Industrial Average saw a slight rise. The Russell 2000 index also fell, showing a mixed performance across various stock categories.
Here’s how the major indices closed: the Dow increased by 0.02% to 44,922.39, the S&P dropped by 0.58% to 6,411.45, and the NASDAQ declined by 1.46% to 21,314.95. Most chip stocks declined, but Intel gained 6.97% after selling $2 billion worth of stock to SoftBank, despite concerns about dilution.
Impact on Chip Stocks
Other chip manufacturers had a tougher day. Broadcom, Nvidia, AMD, Taiwan Semiconductor, ASML, and Micron all saw declines ranging from 0.53% to 5.44%. The NASDAQ closed below its 100-hour moving average, suggesting a short-term negative trend. Technical focus will shift to the 200-hour moving average at 21,123.54 for tomorrow. Sector performance varied, with 7 of the 11 S&P sectors gaining. Real estate rose by 1.8%, consumer staples increased by 1.0%, and utilities climbed 0.83%. However, information technology dropped by 1.88%, telecom services fell by 1.16%, and consumer discretionary declined by 0.38%. Recent selling in growth and tech stocks indicates a change in market leadership. Money is shifting away from names like Nvidia and AMD and moving into safer sectors. This could be a good time to buy put options on the NASDAQ 100 ETF (QQQ) to hedge against or profit from further declines. This shift is backed by recent economic data, with July’s CPI report coming in higher than expected at 3.4%. This raises concerns about the Fed’s strategy, making safer investments in utilities and consumer staples more appealing. We should consider call options on ETFs like XLU and XLP to follow this shift.NASDAQ’s Technical Warning
The NASDAQ breaking below its 100-hour moving average is a significant warning sign. If it cannot maintain the 200-hour moving average around 21,123, we could see a sharp drop. An increase in implied volatility could make buying VIX calls a profitable move in the coming weeks. We can also use a pairs trade to focus on this rotation. This means buying calls on a defensive sector ETF while simultaneously buying puts on a tech-focused ETF, profiting from the performance gap between value and growth, regardless of the overall market trend. This pattern of weakening market breadth is familiar, echoing what we saw in early 2022. Back then, a similar shift out of tech preceded a broader market downturn. History indicates that we should take these early warnings seriously and adjust our portfolios accordingly. Create your live VT Markets account and start trading now.Mexico will propose renewing the North American steel committee to enhance trade.
Mexico plans to bring back a North American steel committee to strengthen trade with the United States. This proposal aims to improve trade relations between the two countries.
According to Bloomberg, this initiative will focus on boosting economic cooperation. It is viewed as a move to protect shared trade interests in the steel industry.
With Mexico looking to revive the North American steel committee, we might see less price volatility for steel in the long run. Mexico has become a major steel supplier to the U.S., with imports surpassing 4.2 million metric tons in 2024. Better relations could lead to more stability in the market. This may indicate that any extra risk in steel futures could gradually decrease in the coming months.
However, the negotiation process could bring some short-term fluctuations in the market. Traders might want to consider options strategies that take advantage of this uncertainty, like straddles on key companies such as Cleveland-Cliffs (CLF) or Nucor (NUE). These strategies could be profitable if news leads to sharp price changes. As the first committee meetings approach, implied volatility for these stocks is likely to rise.
We can look back at the period from 2018 to 2020 when discussions about Section 232 tariffs led to major price swings in steel equities as a reference for what might happen. While the aim of the new committee is collaboration, even a hint of disagreement could unsettle the market. Thus, we can see this news as a positive sign for long-term stability, while also acting as a short-term trigger for volatility.
This renewed attention to trade rules will impact the VanEck Steel ETF (SLX) directly, making its options useful for reflecting overall market sentiment. Keep an eye on Hot-Rolled Coil (HRC) futures, as they are the primary benchmark and will respond first to news from the committee. If prices stay above the $750/ton range, like we experienced earlier this year, there could be a risk if the committee suggests a significant increase in cross-border supply.
From Mexico’s perspective, this is a good sign for producers like Ternium (TX). Any progress in talks could positively influence the company’s outlook. We may see bullish positions develop in its derivatives due to improved access to the U.S. market.
NASDAQ index drops 1.60%, falls below 100-hour moving average, raising bearish concerns
The NASDAQ index is currently down 347 points, or 1.60%, dropping below its 100-hour moving average at 21,331.91. This change indicates a negative short-term trend and raises concerns about more selling ahead.
In the past, when the index broke below the 100-hour average on August 1, it fell towards the 200-hour moving average, which is now at 21,119.99. If the index falls below this level, the bearish trend could strengthen, suggesting more declines.
Traders are closely watching if the index can close above the 100-hour moving average or if it will continue towards the 200-hour moving average in the coming sessions. Attention is also on the Jackson Hole Summit, where Fed Chair Powell will talk about policy, impacting market sentiment.
The 200-hour moving average is the first key support level. If the index declines further, it could hit the 38.2% retracement level at 20,864.09 and later the 50% midpoint around 20,573.83. Hitting these levels would mean a drop of about 4.25% from the August 12 peak, suggesting a significant correction if selling continues.
The NASDAQ falling below its 100-hour moving average signals a warning. This shift points to a more bearish market outlook. The main question is whether sellers can keep the price below 21,331 as the day ends.
This downturn is supported by rising market fear. The VIX, which measures expected volatility, has risen over 25% this week to 19.5, indicating increased anxiety among traders. This environment can lead to quick downward movements.
The 200-hour moving average at 21,119.99 is now the next major support. On August 1, 2025, a similar break led directly to testing this level. Historical trends show that sellers are likely to target it next.
For those trading options, now is the time to think about protective puts on indices like the QQQ. The CBOE put/call ratio has risen to 1.15, meaning more traders are buying puts than calls as they expect further declines. This defensive strategy is gaining popularity.
All eyes are on Fed Chair Powell’s speech at the Jackson Hole Summit this Friday. Current market pricing from the CME FedWatch Tool shows an 83% chance of a rate cut at the next meeting. However, with the latest CPI report at 3.4%, any hawkish comments from Powell could unsettle the market.
Given the uncertainty around the speech, strategies like a long straddle could be beneficial. This approach allows traders to profit from large price movements in either direction following Powell’s remarks. The unpredictability makes choosing a direction before Friday a risky endeavor.
If the 200-hour moving average does not hold, our next target will be the support zone near 20,864. A further decline could lead us to the 20,573 level, marking a 4.25% correction from the highs on August 12. These are critical levels to consider for trading.
Additionally, we must factor in the seasonal challenges ahead. Historically, September is the weakest month for stocks, a phenomenon known as the “September Effect.” This trend adds to the current bearish signals we are observing.
