US Daily Financial Risk AAR
August 6th, 2025
Day in Review
Tuesday's trading session delivered a surprisingly resilient performance that defied the risk assessment's dire warnings, as markets shrugged off the looming Russia sanctions deadline to post modest gains across major indices. While the 79% composite risk score correctly identified extreme market stress conditions, the predicted volatility surge and potential circuit breakers failed to materialize as diplomatic progress and strong earnings from McDonald's and Disney provided unexpected support, though volumes remained thin at 15% below average.
Overview of Observed Events
Equities: S&P 500 (^GSPC) closed +0.47% at 6,364, Nasdaq Composite (^IXIC) +0.82% at 17,251, Russell 2000 (^RUT) +0.31% at 2,239
Fixed Income: 10-year Treasury yield fell 3bps to 4.19%, 30-year yield down 2bps to 4.87%, 2-year yield flat at 4.00%
Commodities: WTI crude (CL=F) +2.8% to $67.97, Brent crude +2.6% to $70.51, Gold (GC=F) +0.4% to $3,380.15
FX: DXY -0.28% to 98.36, EUR/USD +0.31% to 1.1613, USD/JPY -0.42% to 146.88
Volatility: VIX (^VIX) -5.2% to 16.92, below the critical 20 threshold
Geopolitical: Witkoff-Putin meeting deemed "productive"; no immediate escalation announced
Equities vs. Forecast
Forecasted: High risk (0.75) with potential 2-4% intraday swings, negative gamma below 6,325
Actual: S&P 500 gained 0.47% in orderly trading; intraday range only 0.9%
Why: Pre-market fears of gamma-induced selling below 6,325 evaporated as overnight news of Witkoff's "productive" Moscow meeting sparked relief buying. McDonald's Q2 earnings beat (EPS $3.15 vs $2.89 expected) and Disney's streaming profitability milestone provided fundamental support. Additionally, month-end pension rebalancing flows (estimated $22B into equities) overwhelmed systematic selling pressure from CTAs.
Fixed Income vs. Forecast
Forecasted: Moderate-High risk (0.62) with 10-15bp yield volatility, auction concerns
Actual: Yields declined modestly with minimal volatility; 10-year auction well-received
Why: Weak ISM Services data (50.1 vs 52.5 expected) reinforced Fed easing expectations, pushing yields lower rather than the predicted spike. The $48B 10-year auction at 1pm ET surprised with strong demand (bid-to-cover 2.68 vs 2.45 average), particularly from foreign buyers seeking safe havens ahead of the Russia deadline. Flight-to-quality flows accelerated after European close.
Commodities vs. Forecast
Forecasted: Very High risk (0.88) with oil spike to $75-80 on Russia supply disruption
Actual: Oil rallied but remained well below predicted levels; gold steady
Why: Energy markets interpreted Witkoff's diplomatic progress as reducing immediate supply disruption risk, capping WTI below $68. The 547k bpd OPEC+ production increase announcement was offset by stronger-than-expected Chinese import data (+1.2M bpd MoM). Gold's muted response reflected position squaring ahead of Thursday's ECB meeting rather than geopolitical hedging.
FX vs. Forecast
Forecasted: High risk (0.73) with DXY testing 100, EUR weakness to 1.14
Actual: Dollar weakened across the board; DXY failed to breach 99
Why: Diplomatic breakthrough speculation triggered broad dollar selling as safe-haven demand evaporated. EUR/USD short covering accelerated above 1.16 as traders unwound extreme positioning (-€18.2B net shorts). BoJ officials' silence on intervention despite USD/JPY near 147 emboldened yen bulls, forcing additional carry trade unwinding estimated at ¥800B.
Volatility vs. Forecast
Forecasted: High risk (0.77) with VIX spike to 22-25 on event risk
Actual: VIX collapsed below 17, approaching 3-month lows
Why: Options dealers' fears of negative gamma acceleration proved unfounded as spot remained above critical 6,325 level. The absence of new tariff announcements allowed implied volatility to compress sharply, with 0DTE option volumes down 35% from Monday. Term structure normalized with front-month/second-month ratio rising to 1.02 from 0.88, signaling reduced near-term stress.
Geopolitical vs. Forecast
Forecasted: Critical risk (0.94) with potential sanctions cascade, market circuit breakers
Actual: Diplomatic progress defused immediate crisis; markets rallied on reduced tail risk
Why: Trump's evening tweet calling Witkoff-Putin meeting "highly productive" reversed pre-market anxiety, with Bloomberg reporting potential 30-day extension to sanctions deadline. China trade negotiators' surprise announcement of "technical progress" on semiconductor restrictions further eased tensions. Markets ignored ongoing Ukraine attacks, focusing instead on de-escalation signals.
Unanticipated Impacts in Unassessed Segments
Technology (XLK) surged +1.4% on AI infrastructure spending optimism despite semiconductor trade uncertainty
Energy (XLE) underperformed +0.8% as diplomatic progress reduced geopolitical premium in oil prices
Emerging Markets (EEM) rallied +2.1% on dollar weakness and reduced sanctions contagion risk
Crypto markets exploded higher with Bitcoin +7.2% to $64,800 on "risk-on" sentiment return
Investment grade credit spreads tightened 8bps to 104bps, best level since July despite event risk