In October, Spain saw an increase in unemployment by 22.1K, much higher than the expected rise of 5.2K. This indicates a larger than anticipated spike in joblessness.

Trading Sentiment and Developments

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Impact of Spanish Unemployment

The unexpected rise in Spanish unemployment is a significant setback, jumping by 22.1K compared to a slight 5.2K forecast. This is the weakest data we’ve seen in over a year and challenges the idea of a stable recovery in 2024. As a result, the Euro is under immediate pressure, already trading near three-month lows at 1.1500 against the dollar. Given this negative news, buying put options on the EUR/USD, with strikes below 1.1500, is worth considering. Weak labor market data from such a prominent Eurozone economy increases the likelihood that the European Central Bank will adopt a cautious stance. Historically, economic weaknesses in smaller economies have led to prolonged downturns for the Euro, as seen during the early 2010s debt crisis. The troubling data from Spain also makes put options on the IBEX 35 and the broader Euro Stoxx 50 index appealing. Spain’s unemployment rate, which had been declining from its pandemic peak above 12% in 2023, now seems to be reversing, posing a threat to consumer spending. This situation raises the risk of earnings cuts for European companies, particularly in banking and retail. Amid this rising uncertainty, we expect an uptick in implied volatility across European markets. The VSTOXX, which measures Eurozone equity volatility, is currently near 18 but could easily rise to the mid-20s if the sentiment continues to deteriorate. This implies that long volatility strategies could be rewarding as markets start pricing a broader range of outcomes for the European economy. Create your live VT Markets account and start trading now.

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