European stocks are rising as the trade deal between the US and Japan boosts market confidence. Investors are hopeful for more trade agreements, leading to a surge in stock prices. Key market indexes are seeing gains: the Eurostoxx is up by 1.1%, Germany’s DAX has increased by 1.0%, and France’s CAC 40 is up by 1.2%. The UK FTSE has risen by 0.4%, while Spain’s IBEX has gone up by 0.3%, and Italy’s FTSE MIB is up by 1.1%.

European Stocks Push for Recovery

These gains almost make up for the losses from the last couple of days as European stocks try to bounce back. While US-EU trade talks are important, the deal with Japan is fueling positive market sentiment, even with the political uncertainty in Tokyo. S&P 500 futures have risen by 0.3%, with Wall Street waiting for earnings reports from Alphabet and Tesla after the market closes today. This renewed optimism suggests it might be a good time to consider short-term bullish moves. Buying call options on major European indexes can help traders take advantage of expected price increases. The current low volatility, a result of this optimism, makes these options cheaper to buy.

Market Strategies Adjusting to Optimism

The Euro Stoxx 50 Volatility Index (V2X), Europe’s key fear gauge, is now around 15, which is much lower than its one-year average. This shows that investors are becoming more complacent, making strategies that benefit from stable or rising prices more appealing. We think selling out-of-the-money put options to earn premiums is a good approach in this environment. However, we should balance this excitement with the actual economic data. Germany’s latest manufacturing PMI is below 50, indicating that the country’s industrial sector hasn’t fully recovered yet. This gap between market enthusiasm and economic reality means any bullish investments should be carefully protected. Historically, market rallies triggered by trade deal announcements, like after the initial USMCA agreement, can be short-lived. Initial excitement often fades, and focus returns to broader economic issues within weeks. Thus, any long positions taken now should have clear profit targets. We are also keeping an eye on the European Central Bank, as recent Eurozone inflation has dropped to an annual rate of 2.4% in April 2024. Any signals of future interest rate cuts would support stock prices more sustainably than this temporary trade optimism. This potential policy change from the central bank is crucial for our medium-term perspective. Create your live VT Markets account and start trading now.

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