European indices dropped at the start of trading. The Eurostoxx fell by 0.6%, Germany’s DAX went down by 0.2%, and France’s CAC 40 decreased by 0.8%. The UK FTSE saw a 0.3% drop, Spain’s IBEX fell by 0.5%, and Italy’s FTSE MIB declined by 0.1%. In the US, S&P 500 futures were also down by 0.3%. The US markets are closed today for the 4th of July holiday. There is a cautious mood as countries prepare for potential tariff hikes set for August 1, largely influenced by Trump’s recent trade announcements. This morning’s declines in Europe show increasing concern among investors. The Eurostoxx’s 0.6% drop, along with similar losses in other major indices, points to softened sentiment. The DAX’s slight decline of 0.2% and France’s larger drop of 0.8% remind us how sensitive these markets are to trade news. In the UK, the FTSE slipped by 0.3%, while declines in Spain and Italy, although smaller, indicate widespread selling. Over in the US, with S&P 500 futures down 0.3% ahead of reopening, there’s no quick boost to improve outlooks. The markets are quieter today due to the Independence Day holiday in the US, and this lull has brought more unease than calm. The current mood isn’t dramatic, but rather cautious, shaped by upcoming tariff changes and recent comments from the former president. Pricing now reflects more than just holiday effects. These trends suggest a need for careful exposure management in the near future. There’s a shift toward reduced directional confidence and more complex outcomes. Implied volatility is low across key maturities, showing little interest for significant market shifts. The easing of exposure is calm and methodical, not driven by fear, but rather focused on efficiency and stability. When Trump discussed upcoming tariff actions, it was more than just talk. These proposed changes are set for the future, but preparation from a derivatives perspective is crucial now. Contracts expiring in August, and even into September, are already feeling the effects of this readjustment. It’s important to note that Vega exposure in short-dated contracts may not provide the expected support. With less trading volume, spreads might widen more than predicted. Our strategy should focus on calendar spreads in skew-neutral setups, allowing for participation if volatility rises, but limiting losses if price movements stay stable. In terms of gamma, there’s no rush to make big changes. Let’s see where real demand lies as trading begins to pick up with the US returning. We can expect asset allocators to adjust their positions after keeping exposure low before policy changes. So, caution is key. The macro calendar is light, but sentiment is enough to cause shifts in skew profiles. Through mid-month, we’ll monitor open interest in out-of-the-money puts—changes there will indicate how widespread the demand for protection is.

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