French household confidence fell in August, hitting its lowest level since October 2023, according to INSEE on August 26, 2025. The consumer confidence index dropped to 87, falling short of the expected 89. Concerns about unemployment are high, adding to this decline in confidence. People also feel less optimistic about their standard of living, with the sub-index for future living standards dropping two points to -64, the lowest since March 2023.

Key Market Indicators

The decline in French consumer confidence is a major warning sign for the upcoming weeks. This indicates a decrease in domestic demand, which could negatively impact the CAC 40 index, especially retail and luxury goods stocks. To prepare for a potential market downturn, we are considering buying put options on the CAC 40 index. We could also look into individual puts for consumer stocks that are most affected. This strategy will perform well if the market declines, as we expect. This worry isn’t just in France; we noted a disappointing German IFO Business Climate index just last week. The combined weakness from the two largest economies in the Eurozone suggests a larger regional slowdown. This reinforces the need for a cautious or bearish approach to European assets.

Potential ECB Policy Response

We think that these disappointing data will push the European Central Bank to adopt a more cautious approach at its September meeting. With Eurozone inflation easing to 2.1%, these growth worries could stall discussions about tightening policies. This situation might be beneficial for French government bonds (OATs). A cautious ECB, particularly while the US Federal Reserve focuses on its own priorities, could also impact the Euro. Therefore, we are considering strategies that would benefit from a drop in the EUR/USD exchange rate. This includes put options on the Euro and bearish futures positions. This consumer pessimism reminds us of the sentiment from late 2023, which occurred before a notable economic slowdown in early 2024. History tells us that a sharp drop in future expectations usually isn’t isolated; it often leads to a prolonged period of reduced household spending that can extend for several months. Create your live VT Markets account and start trading now.

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