European stocks decline as investors remain cautious, with S&P 500 futures also dipping
by VT Markets
/
Aug 20, 2025
Market Caution Persists
European markets are showing caution today. The Germany DAX is down 0.8%, and the Eurostoxx 600 has dropped 0.6%. This defensive mood is also seen in US futures, which are declining after Wall Street’s downturn yesterday. The market is preparing for Fed Chair Powell’s speech at Jackson Hole later this week.
This anxiety is understandable. The July 2025 Consumer Price Index (CPI) report showed an inflation rate of 3.1%, still above the Fed’s goal. With the current Fed Funds Rate at 4.00%, any strong hints from Powell could push back hopes for the next rate cut. We remember how his firm speech in 2022 led to a market drop, and that past event is influencing current trading.
The uncertainty is evident in the rising implied volatility, with the VIX index climbing to 17.5 this morning. This indicates that traders expect a bigger move in the S&P 500 over the next month. For us, it makes sense to consider near-term protection, like buying puts on the SPY or VIX calls, to guard against any negative surprises from the Fed.
Economic Divergence Opportunities
In Europe, sluggish growth adds to the issue. The latest German ZEW Economic Sentiment survey reported a negative 5.2. This weak economy helps explain why the DAX is lagging behind US indices. This difference could create trading opportunities, like going long on US indices while shorting European ones, to benefit from contrasting economic trends.
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by VT Markets
Aug 20, 2025
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