European indices showed slight upsides today. The Eurostoxx, Germany’s DAX, and France’s CAC 40 each increased by 0.3%. The UK’s FTSE went up by 0.2%, while Spain’s IBEX rose by 0.7%. Despite these gains, trading was quiet due to a holiday across most of Europe, although markets remained open. Italy’s Milan exchange closed for Ferragosto. The positive trend in European stocks reflected a lighter atmosphere in US futures, with S&P 500 futures rising by 0.2% and Dow futures increasing by 0.7% today.

Market Quietness And Volatility

Today’s small gains on low holiday trading volume should not be mistaken for strong confidence. The current calm has lowered implied volatility, with the VSTOXX index—measuring volatility on the EuroStoxx 50—trading near a multi-month low of 14. This low trading volume can create a misleading view of the market’s health. We are closely watching the upcoming Eurozone inflation data for August, due in two weeks. The final July figure was 2.9%, which suggests that another high number could pressure the European Central Bank (ECB). This upcoming data could be a significant market influencer not reflected in today’s calm. This data will directly impact the ECB’s meeting on September 11. Currently, interest rate futures show about a 50/50 chance of a final rate hike, leading to high uncertainty. We should expect increased volatility as the market reacts to new inflation numbers ahead of this meeting. Historically, we need to acknowledge the “September effect,” a common trend where markets often dip. Since 2005, the EuroStoxx 50 has had an average negative return in September over the last 20 years. This historical trend implies that now is not the time for complacency.

US Futures And Policy Decisions

The upbeat sentiment from US futures is delicate, especially after the strong US jobs report from early August, which showed 215,000 new jobs. This complicates the Federal Reserve’s decisions for its September meeting. All eyes will be on the Jackson Hole symposium at the end of the month for any shifts in policy direction. Given the current low cost of options, we see an opportunity to build positions that could profit from potential market movements. Buying September or October puts on indices like the DAX for protection, or purchasing VSTOXX calls, could be a wise move. This approach allows us to prepare for the influx of important economic data and central bank decisions following the summer break. Create your live VT Markets account and start trading now.

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