European stock markets are holding onto last week’s gains. German DAX futures are up by 0.3%, while UK FTSE futures remain steady.

European Equities Looking for Momentum

European equities are expecting continued momentum. This largely hinges on the Federal Reserve’s actions in the coming days. US futures are stable, with S&P 500 futures rising slightly by 0.1% as European markets begin. We see a small increase in European and US futures, but the market remains cautious. The minor gains in the Eurostoxx and S&P 500 futures indicate uncertainty rather than strong conviction. Attention is focused on the Federal Reserve’s interest rate decision later this week, which could guide market trends for weeks to come. This nervousness is based on recent data; late August showed US core inflation at 3.4%, higher than the 3.2% forecast. This has sparked debate on whether the Fed will signal one more rate hike this year or maintain a pause. For traders, this means a higher risk of sudden market shifts in either direction. In response, the VIX, a measure of expected market volatility, has risen to 18 from a low of 14 a few weeks ago. This suggests traders should consider strategies that benefit from large price movements, regardless of direction. Buying options that expire after the Fed’s announcement could be a smart way to prepare for the expected volatility.

ECB Decision Adds More Pressure

The European Central Bank’s choice to keep rates unchanged last week adds another layer, as they often follow the Fed’s lead. If the Fed stays aggressive, it puts pressure on the ECB and could impact European equities like the DAX, which has had trouble breaking through key resistance levels. Thus, the Fed’s stance is just as crucial for European derivatives as it is for US ones. Looking back, we noticed similar trends throughout 2023, where markets often drifted before an FOMC meeting. These periods were usually followed by significant price movements once the central bank’s statement was released. The key is to avoid getting caught in pre-announcement fluctuations and to be ready for the following volatility. Create your live VT Markets account and start trading now.

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