In early European trading, Eurostoxx futures fell by 0.1%. Traders are feeling cautious as they wait for today’s US inflation data. In the stock market, German DAX futures went down by 0.2%, while UK FTSE futures rose slightly by 0.1%. This follows a quieter day after earlier optimism.

US Futures Steady

US futures, including the S&P 500, are holding steady. Market mood is likely to depend on the upcoming US Consumer Price Index (CPI) report for the rest of the week. The current calm in the market is all about the upcoming US CPI data. We are eager to see whether the August inflation rate is above or below the expected 2.8%. This will significantly impact the Federal Reserve’s next steps. Any surprise in the data could lead to a big market shift. This data is important because the Fed has kept interest rates steady at 4.75% for several meetings in 2025. Currently, Fed funds futures indicate about a 50% chance of a rate cut before the year ends, a possibility that could change dramatically after the report. Similar uncertainty was evident in late 2023 before the Fed indicated the end of its rate hikes. With this binary event approaching, we should expect volatility. The VIX index has risen to 18 this week, much higher than last month’s low of 14, suggesting traders are anticipating a larger-than-usual market move. A good strategy might be to use options to buy volatility, like a straddle on the SPY ETF, allowing profit from sharp swings in either direction.

European Market Trends

In Europe, the picture looks a bit different. The European Central Bank has already implemented two small rate cuts this year. The small changes in Eurostoxx and DAX futures show that the market is more worried about slowing growth in the region than about inflation, which has stabilized around 2.3% in the Eurozone. This creates opportunities for trades between US and European indices in the coming weeks. For those with long equity portfolios, now might be a good time to consider protective strategies. Buying out-of-the-money put options on indices like the S&P 500 or Eurostoxx 50 can serve as low-cost insurance against a negative market response to surprisingly high inflation data. To express a market view with limited risk, option spreads can be used. If a trader expects lower-than-forecast inflation, they could buy a bull call spread on the QQQ ETF. On the other hand, a bear put spread offers a capital-efficient way to prepare for a market downturn if inflation remains stubbornly high. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now