**France Close to Finalizing 2026 Budget** France is close to finalizing its 2026 budget after long negotiations. The country still faces fiscal challenges, with a deficit at 5% of GDP. However, the government’s actions are enough to avoid a crisis, ensuring stability until the 2027 elections, with no major changes expected. Inflation in the Eurozone remains steady, hovering around the European Central Bank’s 2% target. While overall inflation is stable, some countries differ. French and Italian inflation is below the target, unlike in Germany and the Netherlands. Core inflation is expected to stay stable, leading the ECB to likely keep interest rates unchanged. With the ECB expected to hold rates steady, we can expect low volatility in interest rate markets. The latest inflation estimate for January was 1.8%, indicating there’s no immediate need for the ECB to change rates. This stable environment is good for strategies that benefit from stable prices, such as selling short-dated options on EURIBOR futures to earn a premium. **Positive Outlook for European Equities** The ongoing but cautious recovery suggests a positive outlook for European equities. The VSTOXX volatility index recently dropped to a 12-month low of 14.5. While long positions might not yield the best returns, bull call spreads on indices like the Euro Stoxx 50 could capture some upside. This strategy allows us to take part in the recovery while managing our risk. In France, the expected approval of the 2026 budget has reduced short-term risks, which should help French government debt perform better than German debt. This month, the gap between French and German 10-year bonds has narrowed to 45 basis points. Taking a long position in OAT futures while shorting German Bund futures is a smart move to benefit from this lower political uncertainty. We anticipate that the recovery in manufacturing throughout 2025 will support corporate earnings, particularly with improved domestic demand. Last year’s data showed a 6.7% increase in European car sales, highlighting strong consumer spending. This robust performance backs targeted bullish strategies, for instance through call options on European automotive or industrial sector ETFs. Create your live VT Markets account and start trading now.

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