In early European trading, Eurostoxx futures dropped by 0.4%. German DAX futures decreased by 0.3%, and UK FTSE futures fell by 0.2%. The cautious market mood follows Trump’s announcements about possible tariffs. These tariffs are expected to start on August 1, with initial rates at 10% and possibly climbing to 60% or 70% for some countries.

Risk Sentiment and Market Reactions

This news has affected risk sentiment, leading S&P 500 futures to decline by 0.3%. Notably, US markets are closed today for the 4th of July weekend. The responses in futures markets in Europe and the US clearly show reactions to Trump’s trade comments. The threat of tariffs scheduled for August suggests a shift toward protectionism. Futures in the Eurozone and the UK experienced noticeable pullbacks, indicating growing caution among global investors. Likewise, S&P 500 futures saw minor losses, even with the US markets closed for Independence Day. The lack of trading in the US amplifies movements in other regions, making them more sensitive to news. What we’re experiencing now is more about sentiment than size. Prices reveal that traders are unsure about holding onto risk positions with strong conviction. The downward pressure isn’t severe enough to signal panic, but it reflects a cautious step back from risk in case more significant issues arise.

Looking Ahead to Next Sessions

As we look to upcoming sessions, attention will shift to how traders adjust once US markets reopen. Historically, after bank holidays, we often see bigger-than-normal trading activity on the next open, so changes could happen quickly once liquidity returns. It’s crucial to monitor trading volume when US markets come back. If open interest rises with further declines, it suggests traders are gaining confidence in this move. On the other hand, if selling pressure is offset by buying or lower volumes, it might indicate temporary adjustments due to this weekend’s announcements. From the perspective of derivatives, we should keep an eye on implied volatility across equity indices. A consistent increase in short-term implied volatilities usually signifies a more cautious stance among market-makers, potentially leading to a gap between spot and forward prices. Changes in skew can also indicate whether traders are hedging against downward risks. Additionally, US Treasuries will be key to understanding current market positions when trading resumes. A rise in ten-year or shorter notes, especially if inflation expectations drop, would support a more cautious sentiment related to trade issues rather than interest rates. Options traders should also watch the SPX weekly expiry structures for any significant moves towards tail protection. If we see more protective trading by Monday morning, it could indicate that larger funds are preparing for continued volatility into next week. Weekly gamma exposure will become more important, especially if dealers need to hedge significant moves around the 5100 to 5200 range. The next big challenge will be Friday’s US payroll data. If the results are better than expected, it could raise concerns about higher rate expectations, especially if we see ongoing wage growth. This may change market expectations and disrupt any positioning set earlier this summer. For now, we must remain alert and flexible. Responses to economic data, comments from policymakers, and price swings will likely be closely connected, leaving little room for complacency. Trading strategies that worked in calmer conditions may need adjustment if this cautious sentiment deepens. Create your live VT Markets account and start trading now.

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