European indices had mixed results at the end of the week. Germany’s DAX dropped by 0.35%, while France’s CAC barely budged with a slight increase of 0.01%. The UK’s FTSE 100 saw a small rise of 0.22%, Spain’s Ibex fell by 0.04%, and Italy’s FTSE MIB rose by 0.46%. During the week, Germany’s DAX edged up by 0.14%, whereas France’s CAC slipped by 0.08%. The UK’s FTSE 100 increased by 0.57%, Spain’s Ibex decreased by 0.14%, and Italy’s FTSE MIB saw an increase of 0.58%.

Anticipation for Tariff Changes

Looking ahead, there’s growing anticipation for the August 1 deadline concerning tariff changes. The possibility of tariffs rising to 30% is significant. Speculation suggests that even with some agreements, the lowest tariffs could fall to around 10% if the EU imposes none. There is a chance that tariff levels could remain higher than expected. The U.S. administration seems to favor increasing tariff revenues, thinking that pressures from inflation might ease. The varied performance across European markets points to uncertainty ahead of a major event. Markets are essentially stagnant, with indices like the DAX and Ibex barely changing throughout the week. This uncertainty often precedes a big move.

Concern Over U.S. Tariffs

Our main concern is the potential for increased U.S. tariffs, which could wake up the markets from their current lull. European market volatility, measured by the VSTOXX index, recently spiked above 18 due to political news in France, reflecting how fragile the market is to uncertainty. An escalation in trade disputes could push this measure much higher, much like during the 2018-2019 trade conflicts when the U.S. VIX soared over 40% due to tariff updates. Former President Trump’s perspective indicates that tariff revenues are beneficial and that inflation pressures will ease. Recent U.S. inflation data for May, showing a decline to an annual rate of 3.3%, might encourage a more assertive trade policy. This increases the likelihood of higher tariffs, more than some traders might realize. In light of this situation, we suggest that traders consider buying protection for their equity portfolios. Purchasing put options on major indices like the Euro Stoxx 50 or the DAX can help shield against a sharp market downturn. This strategy creates a safety net for potential losses if trade talks go sour. For those looking to profit from the expected volatility, we are exploring strategies like straddles or strangles. These positions aim to benefit from significant price movements in either direction, which seem very likely. The idea is not to predict a market direction, but to prepare for the sharp movements that are expected. Create your live VT Markets account and start trading now.

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