In early European trading, Eurostoxx futures increased by 0.2%. German DAX futures also rose by 0.2%, while UK FTSE futures stayed the same. At the end of August, trading was slow for stocks, and the mood remains cautious as a new week begins. S&P 500 futures dipped by 0.1%, but with a US holiday today, Wall Street won’t impact the session. European markets will act on their own, paying close attention to recent discussions about tariffs proposed by Trump.

Slow Start to September

With US markets closed today, Europe is experiencing a cautious start to September. The small gains in futures do not disguise underlying worries, especially with renewed talks about US tariffs on European goods. This brings a likelihood of increased market volatility. The VSTOXX index, which tracks Euro Stoxx 50 volatility, has already risen to 18, showing traders’ growing unease. Since the VSTOXX spiked above 30 during the 2018-2019 tariff disputes, there is potential for even higher volatility. Buying VSTOXX futures or call options could be a smart move to prepare for this expected turbulence. In addition to trade issues, inflation continues to be a problem. Recent Eurozone figures showed inflation stubbornly at 2.9%, slightly above expectations. This raises concerns for the European Central Bank ahead of its interest rate decision this month. If the ECB takes a surprisingly aggressive stance, it could further push markets down.

Strategies for Managing Risk

Given the risks from trade and interest rates, it’s important to protect our long positions. We should think about buying put options on major indices like the DAX and Euro Stoxx 50. This offers a solid defensive strategy against a potential market decline in the coming weeks. For those willing to take more risks, the higher volatility presents its own opportunities. Selling options to collect premiums, using strategies like iron condors, can be profitable if we expect the market to remain unstable but within a certain range. This approach benefits from the decay of option prices over time, especially when implied volatility is high. Create your live VT Markets account and start trading now.

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