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    European stocks recover slightly as Italy’s index rises 0.5% amid US uncertainty

    by VT Markets
    /
    Sep 1, 2025
    **Questions About Trump Tariffs** European stocks, like the DAX and CAC 40, are experiencing a small rally, but we shouldn’t celebrate just yet. The US markets are closed today due to Labor Day, so this movement is on low volume. The true test will occur when Wall Street opens tomorrow to see if it shares this optimistic outlook. The market is responding to hints that the Trump administration might reconsider its tariffs, which is creating uncertainty. However, the Euro VSTOXX volatility index, an important indicator of market fear, is still high at just over 20, which is above its long-term average. This indicates that options traders expect significant price fluctuations in the coming weeks and not a steady upward trend. We saw a similar situation during the trade disputes of 2018 and 2019, where rumors led to sharp but short-lived rallies. The recent bounce in stock prices comes even though the latest data shows that German factory orders dropped by 1.1% in July, revealing the real economic impact of trade tensions. Hence, this market remains sensitive to any bad news. **Protecting Against Downside** In the upcoming weeks, a wise approach is to shield against potential losses. Buying put options on major indices like the Eurostoxx 50 is a cost-effective way to protect existing investments. This strategy lets us enjoy any potential gains if the tariff news turns out to be favorable while providing security if the mood shifts again. Given the weak economy and ongoing geopolitical tensions, selling out-of-the-money call options could also be a smart tactic. This allows us to earn premium from the increased volatility while betting that any rally is likely to hit a ceiling. It provides a way to earn income while we wait for clearer news on trade matters. Create your live VT Markets account and start trading now.

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