The main European stock markets closed with small gains. Italy’s FTSE MIB led the way with an increase of 0.98%. Germany’s DAX climbed by 0.19%, France’s CAC rose by 0.06%, the UK’s FTSE 100 gained 0.01%, and Spain’s Ibex went up by 0.23%. European 10-year bond yields had mixed results. Germany’s yield increased by 1.6 basis points to 2.701%. France’s yield went up by 2.3 to 3.366%. In contrast, the UK’s yield dropped by 2.2 basis points to 4.597%. Spain’s yield stayed the same at 3.289%, while Italy’s yield rose by 0.6 basis points to 3.543%.

US Market Overview

US stock indices experienced gains, with the Russell 2000 and NASDAQ performing the best. The Dow industrial average rose by 0.06%, the S&P by 0.21%, the NASDAQ by 0.41%, and the Russell 2000 by 0.84%. Microsoft and Meta are about to report their earnings, with estimates of $3.38 EPS and $73.86 billion in revenue for Microsoft, and $5.88 EPS and $44.81 billion for Meta. US bond yields increased: the 2-year at 3.899%, the 5-year at 3.941%, the 10-year at 4.364%, and the 30-year potentially at 4.904%. The US dollar strengthened against the AUD, NZD, EUR, and GBP. Meanwhile, gold prices dropped by $30.24 to $3297, with the 100-day moving average at $3250.48. As we await the FOMC decision, markets seem to be preparing for a strong, hawkish announcement from the Federal Reserve. Rising US bond yields and a stronger dollar signal that traders expect higher interest rates to last longer. This trend continues the fight against persistent inflation, which was common during 2024, often exceeding 3%. US stocks show cautious optimism, but the real challenge will be the tech giants reporting this week. The NASDAQ has gained over 20% in the past year, raising high expectations for Microsoft and Apple. Traders might want to consider options to hedge against potential disappointments, which could lead to a swift sell-off.

Market Tension and Strategy

Despite today’s modest gains, market tension is building ahead of these key events. The CBOE Volatility Index (VIX) is trading around 18, much higher than the calmer levels seen in 2024. Buying call options on the VIX may be a cost-effective way to protect a portfolio from possible market shocks in August. In the currency market, the US dollar remains dominant. The Euro’s weakness continues a trend that started when the European Central Bank began cutting rates in mid-2024, ahead of the Fed. If the FOMC meets hawkish expectations, we might see EURUSD dip below the crucial 1.1447 support level. In Europe, Italy’s market shows impressive performance compared to the other sluggish markets on the continent. This suggests domestic factors are boosting Italian stocks while Germany and the UK show little movement. A possible strategy could be to favor Italian assets over German ones. Gold’s significant drop today is linked to rising bond yields, with the US 10-year yielding over 4.36%. As bond yields rise, the appeal of non-yielding gold decreases. We will closely monitor the $3250 level; a drop below this 100-day moving average might indicate further price declines. Create your live VT Markets account and start trading now.

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