Eurostoxx futures rose by 0.2% in early European trading, suggesting a more stable atmosphere after a previous upswing. German DAX futures increased by 0.3%, while UK FTSE futures stayed the same. European markets are focusing on the new trade deal between the US and the EU, leading to discussions about its implications. This week, the euro area will release its Q2 GDP and CPI figures, which will draw interest, along with typical month-end financial movements.

US Market Updates

In the US, futures are showing some stability after a quieter period. S&P 500 futures are up by 0.1%. Market attention is now on upcoming earnings from Microsoft and Meta, scheduled after the Federal Reserve’s meeting. The market sentiment remains cautious; European futures are up slightly but are facing some challenges. The recent gains feel tentative, especially with major economic data for the Eurozone due this week. Traders should proceed carefully before chasing this small rally until more clarity emerges. The new US-EU trade deal is seen as a positive development, but it seems the market believes this is the best outcome for now. We expect modest 0.2% growth in the Euro area’s Q2 GDP, reflecting a slow recovery since the energy crisis of late 2023. With core inflation likely to stay above the ECB’s 2% target, any unexpected spike in inflation could prompt action from the central bank, making protective options attractive against sudden downturns.

Market Volatility and Strategy

In the US, traders are processing the Federal Reserve’s decision to maintain interest rates, signaling that a cut is not likely soon. All eyes are on Microsoft and Meta’s earnings, which could influence the tech sector and the wider S&P 500. In 2024, we witnessed how a single disappointing report from one of these giants could drag down the entire index for days. Market volatility, as shown by the VSTOXX index, has been low, currently around 14.5. This suggests some complacency in the market, creating opportunities for those who want to bet on a rise in uncertainty. Purchasing VSTOXX futures or long-dated put options on the Eurostoxx 50 could serve as a cost-effective hedge against upcoming risks. Given this situation, traders should look to position themselves for a potential breakout instead of a slow upward trend. Protective puts on indices like the German DAX could safeguard against disappointing GDP or CPI data from Germany. With month-end portfolio adjustments also in effect, expecting some erratic moves in both directions is the most reasonable strategy in the coming days. Create your live VT Markets account and start trading now.

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