Eurostoxx futures rose 0.1% during early European trading. German DAX futures went up by 0.2%, while UK FTSE futures stayed the same.

European Equities Consolidation

European stocks are stabilizing after a strong recovery last week, despite a rough start on August 1. In the US, S&P 500 futures also climbed 0.1% as the week kicks off. The upcoming US CPI report, set to be released tomorrow, is expected to affect market sentiment. This week has started quietly, with traders waiting for a key inflation report. The small increase in Eurostoxx 50 and S&P 500 futures signals that investors are consolidating after the upswing that followed the downturn on August 1. Right now, all eyes are on the US CPI data being released tomorrow.

Significant Catalyst Horizon

The upcoming CPI report is the most important factor to watch. Economists predict July’s headline inflation will be around 3.2%, a slight decrease from the higher numbers seen earlier this year. If the number is much higher, it could pressure stock prices, increasing the chances that the Federal Reserve will keep its hawkish approach. Due to this uncertainty, traders should keep an eye on implied volatility for major index options. Looking back at early 2025, we noticed that the VIX index, which gauges S&P 500 volatility, shot up over 10% just hours after the March CPI was released. We can expect similar volatility spikes tomorrow, creating opportunities for those who are prepared. One possible strategy is to use options to capitalize on the expected price changes without betting on a particular direction. For instance, a long straddle on the SPY ETF or Eurostoxx 50 index could profit from a significant move, whether up or down, after the data release. This is a straightforward volatility strategy for the next few days. The US data will also directly affect European markets like the DAX and FTSE. The European Central Bank has kept its key interest rate at 3.75% for the last two quarters, indicating a focus on data trends. A high US inflation number might negatively impact sentiment in Europe, as it points to ongoing global inflation challenges. As a result, traders might think about purchasing inexpensive, out-of-the-money puts on the Eurostoxx 50 to protect against negative surprises from the US. These contracts provide an affordable way to safeguard a portfolio or speculate on a downturn. On the other hand, call options could be appealing if one expects the inflation data to be cooler than anticipated, potentially causing a relief rally. Create your live VT Markets account and start trading now.

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