European indices started the session with stability. The Eurostoxx rose by 0.2%, while Germany’s DAX stayed the same. France’s CAC 40 saw a gain of 0.3%, and the UK’s FTSE increased by 0.1%. In contrast, Spain’s IBEX fell by 0.2%, while Italy’s FTSE MIB grew by 0.5%. French stocks saw a slight uptick after Bayrou was removed as prime minister. Overall, the increases were modest, reflecting the beginning of the week. Similarly, US futures experienced a slight rise, with S&P 500 futures up by 0.2%. Attention is now turning to the upcoming US Consumer Price Index (CPI) report later this week.

Market Sentiment: Calm Before the Key Event

Currently, the market feels steady, with European indices showing a mixed but calm start. This calm might signify a quiet period before the important US CPI report. Traders often see this as a chance to prepare for possible volatility. The CBOE Volatility Index (VIX) is near 14, indicating relatively cheap options before the major data release. It might be wise to buy protection, like puts on the S&P 500 or Eurostoxx 50, to shield against any negative surprises. This is a cost-effective way to protect long positions before potential market moves. Expectations are leaning towards a US CPI figure of 3.3%, a slight decrease from 3.4% in the last August 2025 reading. We remember the intense market reactions to inflation data in 2022 and 2023, where even a 0.1% miss could cause major fluctuations. A higher-than-expected number could negatively impact equities and pressure central banks to remain hawkish.

Trading Strategies in Uncertainty

In Europe, the political situation in France adds specific risks, especially as markets react to the recent prime minister change. This might lead to underperformance in French equities if overall market sentiment declines. Traders might consider buying puts on the CAC 40 index to target this regional uncertainty. For those uncertain about market direction but confident there will be significant movement, volatility strategies can be appealing. There’s growing interest in straddles or strangles on major indices, which would benefit from a large price shift in either direction after the CPI report. This approach allows traders to focus on the extent of the reaction rather than predicting if the news will be favorable or unfavorable. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now