Seizing Trading Opportunities with the US July CPI as an Example | Moomoo Research

Recently, the frequent release of U.S. macroeconomic data, coupled with the liquidity crisis caused by yen carry trades and ongoing geopolitical risks, has led to significant volatility in the U.S. stock market. The panic selling triggered by the July non-farm payroll report sent shockwaves through global capital markets, making investors even more attentive to the upcoming U.S. economic data.

Last week, a positive initial jobless claims report once pushed the S&P 500 index to its largest single-day gain in nearly two years, injecting a strong stimulant into the market. However, the US July Consumer Price Index (CPI) data to be released this week will undoubtedly become the focus of the market. If the July CPI data significantly exceeds or falls short of market expectations, it may trigger violent market fluctuations.

Under such a background, in response to the recent changes in macroeconomic data, we need to formulate corresponding trading strategies according to different data conditions. So, how should we adjust our trading decisions based on the fluctuations of these data?

On August 14, the U.S. Bureau of Labor Statistics will reveal the July CPI data. The market generally expects inflation to show signs of slowing down, although it has not yet reached the Federal Reserve's 2% target. It is expected that the overall CPI year-on-year growth rate in July will slightly fall to 2.9%, and the core CPI year-on-year growth rate is expected to be 3.2%, both slightly lower than the previous month, marking the lowest level in more than three years.

The decline in the core commodity inflation rate, coupled with the slowdown in wage growth in the July employment data to 3.6%, indicates a reduction in service industry cost pressure and is expected to further promote the decline in the inflation rate. The Cleveland Fed's model even predicts that the CPI year-on-year growth rate in August may fall to 2.7%.

Inflation levels and unemployment rates are the two core indicators that the Federal Reserve closely monitors, as changes in these indicators not only reflect the health of the U.S. economy but also significantly influence the Federal Reserve's monetary policy.

Going forward, we will categorize the changes in these indicators into three scenarios to explore the investment strategies that investors might consider under different circumstances.

Assuming a slowdown in the CPI year-on-year growth rate and a slight increase in the unemployment rate, this can be interpreted as U.S. inflation being well-managed, the labor market remaining stable, and the overall economic environment healthy. Under these conditions, the Federal Reserve could begin to sequentially ease monetary policy, with rate cuts proceeding in an orderly fashion. The market would then trade on the "rate cut" narrative, and we could adopt the following trading strategies:

Assuming an ideal entry price for purchasing TLT below $91, we could sell one TLT put option with a $91 strike price and an expiration date before the September FOMC meeting (September 13). As long as TLT's price does not drop below $91 by September 13, we could earn a one-month premium of $21, with an approximate annualized yield of 2.8%. Meanwhile, the $9,100 in margin could be placed in a cash sweep program to earn an interest income with an approximate annual yield of around 5%.

(1) In volatile market conditions, we could consider adopting a contrarian trading strategy, buying on lows and selling on highs.

(3) During volatile market conditions, it is even more crucial to strengthen cash management investments. Investing in cash sweep products and similar offerings can help boost yields.

Assuming that TLT's price is unlikely to exceed $100, we could sell one TLT call option with a $100 strike price and an expiration date of September 13, while holding 100 shares of TLT. If TLT's price does not surpass $100 by September 13, we could earn a one-month premium of $72, with an approximate annualized yield of around 9%, plus TLT's annual dividend yield of 3.72%.

(2) A rate cut would lead to the depreciation of the U.S. dollar, favoring safe-haven assets such as cryptocurrencies. Therefore, we could take a long position in cryptocurrencies, purchasing Bitcoin ETFs like the iShares Bitcoin Trust (IBIT.US), Fidelity Wise Origin Bitcoin Fund (FBTC.US), etc.

In such an uncertain financial market, one must possess keen insight and the ability to adjust strategies flexibly. As we have discussed, every fluctuation in macroeconomic data is a test of investors' wisdom and decision-making capabilities.

Whether it's the slowdown in CPI growth or the subtle changes in unemployment rates, each data point is the cornerstone of our investment decisions. Based on this, we have formulated three different trading strategies to cope with possible market changes. These strategies not only consider the market's immediate reactions but also focus on long-term investment planning.

Remember, market volatility provides us with opportunities, and in-depth analysis and wise decision-making are the keys to seizing these opportunities. In this era of information overload, let us not be confused by short-term fluctuations, keep a clear mind, and meet every market challenge with strategy and patience.

Finally, let us conclude this topic with a more mature and rational attitude. Investing is not just a game about numbers; it is an art of understanding the meaning behind these numbers.

Remember, the true investor is the one who seeks opportunities in volatility and finds certainty in uncertainty. Let us move forward with more determined steps towards a wiser investment path.