The North American trading session had positive news following a US-Japan trade agreement that reduces tariffs on Japanese imports to 15%. In this deal, Japan will buy 100 Boeing planes and agricultural products. Now, attention is shifting to the European Union as there are hints of a possible 15% tariff agreement with the US. However, White House advisor Peter Navarro cautions against jumping to conclusions.

Impact Of EU Tariffs

The EU is said to be preparing counter-tariff measures, which could strain relationships. Despite this, stock markets reacted positively. US production is expected to rise to help reduce trade deficits. Although home sales in the US were lower than expected, prices increased, and inventory levels rose to 4.7 months, which is below the typical six-month standard. US stocks climbed, with the S&P, NASDAQ, and Dow indices reaching record highs. After-hours trading showed Alphabet shares rising due to strong earnings, while Tesla saw slight growth despite mixed results. In the debt market, treasury bond yields increased, and crude oil prices fluctuated around $65. Gold prices dropped by $45.15, and Bitcoin fell by over $2000. Treasury Secretary Bessent hints at possible rate cuts, and discussions with the EU are improving. Looking at today’s events, the market appears optimistic but might be overly relaxed. With the S&P 500 and Nasdaq at record highs, implied volatility is low. The VIX index recently hit a multi-year low of 11.5, indicating cheap options pricing and an opportunity for a future volatility spike.

Opportunity In Market Volatility

The mixed signals about a European trade deal create a clear situation for traders. Mr. Navarro’s cautious view contrasts with earlier optimism, setting the stage for a significant market reaction based on the outcome. We suggest buying straddles on major indices, like the SPX, or European-focused ETFs to take advantage of this uncertainty. Even though Mr. Bessent suggests rate cuts, the bond market is reacting differently, with rising yields. This shows that bond traders are more focused on growth and potential tariff-related inflation than on the Treasury’s dovish signals. We see value in positioning for higher short-term rates, possibly through futures on the 2-year note to bet against a dovish forecast. The strong performance of semiconductors, positive earnings from Alphabet, and the White House easing AI regulations support the leadership of the technology sector. We are keeping a bullish outlook, favoring call options on tech-focused ETFs. Historically, deregulation boosts innovation and stock performance in those sectors. The significant drops in gold and Bitcoin indicate a clear shift toward risk-taking, with investment moving from safe havens and speculative assets to stocks. The $45 fall in gold suggests a stronger dollar environment, which we expect to continue if more trade agreements follow Japan’s example. We are considering buying put options to protect against further declines in gold and Bitcoin as the market seeks performance in equities. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now