European stocks had a rough start to the month due to concerns about tariffs. The overall market felt cautious, especially after Apple and Amazon reported their earnings, highlighting the impact of tariffs. S&P 500 futures fell by 1% after struggling to hold new record highs. Nasdaq futures dropped by 1.1%, and Dow futures were down by 0.9%. In Europe, both the DAX and CAC 40 declined by 1.7%, wiping out July gains for French stocks.

US Jobs Report

The upcoming US jobs report is generating anticipation. Strong numbers could reinforce the Federal Reserve’s cautious stance. This might lead to further declines in equity markets before the weekend. Currently, Fed funds futures indicate about a 39% chance of a rate cut in September, suggesting potential market shifts ahead. The market mood feels similar to the trade war jitters of 2019. However, the current anxiety stems from rising geopolitical tensions and stubbornly high inflation, not just tariff threats. This creates a tough climate for equities, as major indices in Europe and the US enter August on a weaker note. Fear is growing in the market, shown by the VIX index, which recently rose from its summer lows near 12 to over 18 this week. This increase in implied volatility makes options more expensive, leading traders with long stock positions to consider protective puts as a costly, yet possibly necessary strategy. The sharp rise indicates increasing uncertainty as we head into autumn. Everyone is watching today’s US jobs report for July. Economists predict around 190,000 new jobs, which would usually be seen as good news. However, a strong number today could be viewed negatively for stocks since it gives the Federal Reserve more reasons to postpone any potential interest rate cuts.

Futures Market Outlook

This situation is reflected in the futures market. The chances of a Fed rate cut by December have dipped to just under 50% from over 70% a few weeks ago. This change suggests traders might consider selling call options on interest rate futures, anticipating that rates will remain higher for longer. The recent Core PCE inflation reading for June, at a steady 2.9%, is the main reason for this shift in outlook. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now