European stocks are gaining momentum after a calm day yesterday. Eurostoxx futures have risen by 0.4% in early European trading. German DAX futures are up by 0.6%, while UK FTSE futures have increased by 0.3%. Wall Street experienced a drop due to disappointing US ISM services PMI data.

US Futures Recovery

Despite this, US futures have bounced back, rising by 0.3% today. This creates an upbeat atmosphere as European markets start the trading day. The markets look positive this morning, with both European and US futures climbing. This follows yesterday’s unsatisfactory US ISM services data, which came in at 49.2, indicating a contraction. The ability of the market to overlook this suggests a strong bullish attitude for now. To take advantage of this trend, investors might consider short-dated call options on the Eurostoxx 50 or DAX. The market has been trading within a narrow range since early July, and this wave of optimism could lead to a short-term breakout. We previously saw a similar trend where weak data was overlooked, resulting in a quick rally back in the first quarter of 2025. However, we should regard the weak US services data as a serious warning for the upcoming weeks. A slowing US economy has led to downturns in global stocks before, which could create a bull trap. Traders might think about buying protective put options on major indices or setting up bear put spreads to shield their portfolios from a possible downturn.

Rising Volatility

The conflicting signals between market sentiment and economic data indicate increasing volatility. The VSTOXX, which tracks Eurostoxx 50 volatility, is currently trading close to yearly lows around 15. This makes buying VSTOXX futures or call options a relatively inexpensive way to benefit from any sharp market movements in the weeks ahead. We should also keep the European Central Bank in mind, as the latest July inflation report showed inflation holding steady at 2.8%. While this is a significant decrease from the highs of 2024, it remains above the bank’s target. Persistent inflation is likely to delay any rate cuts and could limit significant market upside this autumn. Create your live VT Markets account and start trading now.

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