Eurostoxx futures have increased by 0.2% in early European trading, indicating a cautious approach for the upcoming session. German DAX futures also rose by 0.2%, while UK FTSE futures remained steady. US futures are mostly stable after a strong day before. With tensions from the Iran-Israel conflict easing, the focus has shifted to other concerns such as President Trump’s tariffs and trade tensions, which may impact the economy and central bank policies.

Market Reaction

The slight rise in Eurostoxx and DAX futures suggests that traders are not rushing into new positions. The unchanged FTSE futures show a lack of strong conviction in the UK market ahead of upcoming domestic data or global events. The stability in US futures, after a strong rally, illustrates that markets often take time to consolidate gains before choosing a new direction. With the Iran-Israel tensions no longer a main concern, traders are now focusing on long-term issues—mainly the trade dynamics from Trump’s tariff plan and its potential impact on monetary policy. Trump’s tariff actions create uneven market expectations. While some sectors may see headline inflation rise due to higher import costs, the overall effect on the economy will depend on retaliatory actions and whether consumers bear these costs. Markets are starting to factor in new assumptions about these developments, which influences interest rate expectations. We’ve been closely monitoring derivatives pricing, noting a subtle shift in implied volatility across equity and rate products. Options are moving away from predictions of drastic rate hikes and trending towards a more stable outlook, indicating that traders believe the central bank will be patient before making further decisions.

Market Considerations

However, it’s important to stay vigilant. Significant disruptions in supply chains or erratic global equity flows could create new downward risks in pricing models. Trading positions should be tighter, more reactive to data, and hedges should be adaptable across delta and gamma. In Germany, Scholz has indicated support for certain stimulus measures, which could lead to higher short-term bund yields and a steeper yield curve if fiscal pressures increase. Meanwhile, the Bank of England has remained quiet, but swaps are now pricing in a slim chance of further rate hikes this quarter. This isn’t a consensus view, but the direction is becoming clearer. Looking ahead, this week has various economic releases. PMI updates in the eurozone will provide insights into industrial output trends and whether sentiment is improving beyond just financial assets. US earnings, especially from international firms, will reveal if margins are holding steady amid tariff uncertainties. We recommend closely monitoring trade-weighted currency shifts—particularly the euro’s performance—since they may influence cross-asset correlations and risk premia models. In our options portfolios, we’ve noticed a decrease in skew, indicating less concern about extreme outcomes for now. Overall, the market appears more balanced right now, albeit still hesitant about direction. In this environment, there’s potential for rewards in short-term strategies and flexibility. We’ve reduced exposure where pricing seems excessive and are focusing on shorter-term roll strategies to maintain agility ahead of the next macro shift. Create your live VT Markets account and start trading now.

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