European indices had mixed performances. The CAC in France and the FTSE MIB in Italy both fell over 1.1%. However, Spain’s Ibex saw a slight increase of 0.11%. The closing numbers for major indices were as follows: German DAX down 0.73%, France’s CAC down 1.14%, the UK’s FTSE 100 down 0.05%, and Italy’s FTSE MIB down 1.56%.

European Debt Market

In the European debt market, yields mostly decreased, but Italy’s rates stayed the same. Spain’s 10-year yield was 3.271%, Germany’s was 2.693%, France’s was 3.347%, and the UK’s was 4.572%. In the US, the stock market showed overall gains. The Dow slightly dipped by 0.01%, while the S&P increased by 0.47%, NASDAQ rose by 0.87%, and the Russell 2000 dropped by 0.30%. Microsoft shares rose 4.4%, and Meta shares surged 11.85%. Apple and Amazon were set to report after the market closed, with Apple slightly down and Amazon up by 1.74%. US interest rates declined for various durations, with the 10-year yield at 4.340%. Commodities showed mixed results: copper fell, crude oil decreased, and gold went up by 0.60%. Bitcoin also increased, trading at $118,298. Initial job claims remained low, and Core PCE slightly exceeded expectations at 2.8%.

European Markets Weakness

European markets, especially in France and Italy, are showing notable weakness. This presents an opportunity to hedge against further declines. The drop in the CAC and FTSE MIB, both over 1%, suggests traders might want to buy put options on European index ETFs in the coming weeks. Concerns about the French budget deficit and Italian political instability are affecting investor sentiment, making this strategy a way to protect portfolios. In the US, the tech-heavy NASDAQ is rising while the Russell 2000 small-caps are falling, pointing to a possible pairs trading strategy. We should consider buying call options on the NASDAQ 100 and put options on the Russell 2000. This divergence is similar to the pattern observed in late 2023 and early 2024, where major tech stocks outperformed the overall market during economic uncertainty. Tonight’s earnings from Apple and Amazon are expected to create significant volatility, especially following major movements from Microsoft and Meta. Given this uncertainty, we could use straddles or strangles on these stocks to benefit from large price swings in either direction. Historically, stocks like these have seen average post-earnings moves over 5%, making the cost of options a worthwhile investment. The significant drop in copper due to tariff news suggests a risk-averse sentiment in global industrials and materials. This echoes the trade war period of 2018-2019, which pressured cyclical sectors. We should think about buying puts on mining and industrial ETFs to protect against potential trade disputes. Despite the slightly higher-than-expected inflation with Core PCE at 2.8%, US bond yields are falling, indicating that the market is more concerned about a slowdown in growth than the Fed. This uncertainty opens up opportunities to trade options on Treasury bond ETFs like the TLT, betting on continued rate volatility. The last Federal Reserve meeting reflected a divided committee on future rates, supporting potential swings in the bond market. Gold is rising while oil is falling, suggesting a move towards safety and away from growth-dependent assets. With the VIX, a measure of market fear, still low at around 14, buying VIX call options seems like an inexpensive way to protect against market shocks. This approach would guard against various risks we see across different markets. Create your live VT Markets account and start trading now.

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