Derivatives Markets Still Bearish

Daily Updates:

• Despite President Trump’s onslaught of tariffs and a drop in consumer sentiment to a three-month low, spending by US consumers remains robust. In July, inflation-adjusted consumer spending rose by the most in four months (0.3% month-over-month) according to the BEA’s July PCE report. 
• The report also showed inflation in July came in exactly as expected. Core PCE inflation rose 0.3% from June, in line with expectations, while the year-over-year figure rose at a speed of 2.9% since last year — the highest core reading since February 2025. 
• According to a survey conducted by the University of Michigan however, consumers are not sure how much longer that spending momentum will last. The final August sentiment index fell to 58.2 from 61.7 a month earlier, below the preliminary reading of 58.6, while consumers also expect prices to increase at an annual rate of 4.8% over the next year, up from 4.5% last month. 

• Market-implied odds for a 25bps rate cut in September were mostly unchanged following the PCE report at the end of last week and continue to remain anchored at 87%. 
• In a recent speech entitled ‘Let’s Get On with It’, Fed Governor Christopher Waller emphasised that recent data in the US reinforced his view that the Fed should have cut interest rates in their July meeting. 
• Waller said “In July, I argued that, looking through tariff effects, with underlying inflation near target and the upside risks to inflation limited, the FOMC should not wait until the labor market deteriorates before we cut the policy rate. Based on all the data in hand, I believe this argument is even stronger today, and that the downside risks to the labor market have increased.”
• He added that “Based on what I know today, I would support a 25 basis point cut at the Committee's meeting on September 16 and 17.”
• However, Waller stopped short of suggesting a more jumbo-sized rate cut in September: “While I judge that the FOMC should have begun this process in July, based on the data in hand, I don't believe that a cut of larger than 25 basis points is needed in September”, though this week’s August employment report “could change” that view. 

• Economists currently expect that 75,000 jobs were added in August by the US economy, while the unemployment rate is expected to tick up to 4.3% — the highest since October 2021.

• San Francisco President Mary Daly also mirrored some of Waller’s sentiment. On X she posted, “It will soon be time to recalibrate policy to better match our economy”. 
• According to Daly, “tariff-related price increases will be a one-off” and even though it will take time to know that with certainty, the Fed “can't wait for perfect certainty without risking harm to the labor market.”

• On Wall St, US stocks did end the week slightly lower, with the S&P 500 ending Friday’s session down 0.64%. Today, US markets are closed for the Labor Day federal holiday. 

• For most of the weekend BTC traded sideways at $109K. In mid-August, it reached a record high of $123K, however since then it has steadily descended lower and earlier today, it briefly fell as low as $107K. 
• ETH also traded sideways between $4,300 and $4,500, however over the past 30 days, it’s up 22%, in comparison to a 5% decline in BTC. 
• Both assets Spot ETFs saw outflows on the final trading day of August too. BTC Spot ETFs sold $126.7M worth of Bitcoins, while ETH ETFs saw outflows of $164.6M. 

• Derivatives markets continue their bearish forward looking outlook too. We covered the negative sentiment in BTC earlier last week. 
• ETH funding rates fluctuated between -0.02% and 0% over the weekend, and is currently just below neutral levels. Volatility smile skews for ETH were also sideways between -3% and -1%, though longer-dated optionality maintains a bullish premium. 
• The same cannot be said for BTC however — across the term structure, smiles are still skewed towards put options. 

• Last week a federal appeals court ruled that Trump's program of global tariffs were illegally imposed under an emergency law, upholding a May ruling by the Court of International Trade. The judges however let Trump’s levies stay in place while the case proceeds.

• Trump cabinet officials told the appeals court that deeming the tariffs illegal would seriously harm US foreign policy. Treasury Secretary Scott Bessent warned of a “dangerous diplomatic embarrassment.”
• Bessent, Lutnick and Rubio all filed a request that any ruling against the administration be immediately put on hold until the US Supreme Court issues a final decision. Lutnick added that failing to do so would have “devastating and dire consequences”. 

• USD1 stablecoin, issued by Trumped-Backed World Liberty Financial (WLFI), has launched on Solana with 100 million USD1 tokens minted on the chain. This brings the total supply to around 2.69B. 
• The 1:1 USD pegged stablecoin is now able to be traded on Solana-based decentralised exchange Raydium, lending protocol Kamino Finance, and memecoin launchpad Bonk.fun.

• El Salvador is making the move to distribute their 6,274 BTC reserve into separate wallets, capping each at 500 BTC.
• This move is described as a security precaution and a “Bitcoin best practice,” with quantum computing cited as a significant potential risk.

This Week's Calendar:

Charts of the Day: