European stocks rose when the markets opened, showing relief over a US-EU trade deal. The Eurostoxx gained 1.0%, Germany’s DAX went up by 0.8%, and France’s CAC 40 increased by 1.1%. In the UK, the FTSE climbed by 0.4%, while Spain’s IBEX and Italy’s FTSE MIB both rose by 0.8%. To prevent a worst-case scenario, the EU has agreed to a “temporary” deal. Lawmakers want to negotiate better terms, but this current agreement might last throughout Trump’s presidency. For now, a baseline tariff of 15% appears to be set, with more details to come.

Relief Rally

We see this market rise as a relief rally, not a lasting change. The deal is specifically labeled “temporary,” indicating likely future tensions and renegotiations. Traders in derivatives should take advantage of this strength to prepare for increased volatility instead of chasing the rally. The Euro Stoxx 50 Volatility Index (VSTOXX), which measures fear in the market, has fallen toward the 17 level due to this news, making options cheaper. Historically, moments of calm following trade news have been great for buying protection. We recommend buying puts or straddles on the Eurostoxx 50 or the DAX as a cost-effective way to benefit from the volatility we expect. The 15% baseline tariff will squeeze profits for major European exporters, especially in the automotive sector, which sends over $40 billion in goods to the U.S. each year. European carmakers like Volkswagen and BMW were facing even higher tariffs, so this deal is just a slightly better option, not a reason for long-term celebration. We see chances to take bearish positions on specific auto stocks that have surged too much from this news.

Future Uncertainty

Past experiences with trade agreements under the former president show that initial deals often lead to further disputes. Lawmakers have already indicated they want better terms, which can easily spark headlines that may reverse these gains. Therefore, we should view this calm period as a short break to prepare for the coming uncertainty. Create your live VT Markets account and start trading now.

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