Eurostoxx futures dropped by 0.5% in early European trading, suggesting a gentle start to June. German DAX futures fell by 0.4%, while UK FTSE futures remained unchanged. The mood in the US markets is similar, with S&P 500 futures also down by 0.5%. Ongoing trade tensions weigh on the market, as reports indicate little progress between the US and China. Over the weekend, a former US president claimed that China had not kept its trade promises to the US. This sets a slow tone for equity futures in both European and US markets. We’re seeing a small decline across Eurostoxx and DAX, while the FTSE stays steady. S&P 500 futures are slipping too, reflecting worries over trade negotiations. Tensions between Washington and Beijing last weekend seemed to impact market sentiment, especially after Trump suggested that China wasn’t honoring its trade agreements. For those watching derivatives, it’s clear that short-term trading may remain tense. Major indices are slowly losing upward momentum, and this trend is seen in sector futures as well. When news turns negative, such as recent comments about trade agreements, institutional hedging tends to increase. This could widen spreads on short-term options and put slight downward pressure on implied volatility if declines continue without much trading volume. However, volatility is still low compared to past spikes caused by geopolitical events. This indicates that investors aren’t expecting a major escalation—at least not yet. The key takeaway is that there is potential in shorter-dated straddles, which haven’t adjusted to what appears to be a persistent downward trend. Adopting a defensive approach while liquidity is available could provide some protection ahead of next week’s central bank statements and manufacturing data. Looking across sectors, technology-related investments show some signs of fatigue, but it’s not alarming. The sector’s weight in major indices suggests its weakness is affecting broader futures, but there is still a mix of performance. Financial and energy-related futures are holding up better. Futures in the energy sector are reflecting stable crude prices, supporting this view. In the coming sessions, it’s important to monitor differences between major indices and underlying market signals from micro data. We are observing thinner order book depths in Nasdaq-linked futures, making the market more susceptible to sudden intraday swings. This could present opportunities for intraday traders or those managing delta-neutral strategies. What’s crucial now is how much market breadth returns, or doesn’t, as trading volumes rebuild after the bank holiday impact. Futures implied yields are starting to show a subtle upward trend. This might indicate that rate expectations are shifting after a period of stability. Although slow, yield curve steepeners in futures are starting to signal preparations for tighter credit conditions. The correlation between bonds and equities remains mildly positive, suggesting that equity traders are not viewing fixed income strength as a hedge—more like a side effect. Finally, keep an eye on movements in credit-default swaps related to highly-leveraged companies. The spread widened slightly on Friday, making it worth monitoring this week. If it accelerates, the cost of downside index options may rise, prompting dealers to rebalance. This generally leads to exaggerated short-term movements in the underlying market. While subtle, these trends rarely go unnoticed by professional desks for long.

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