The President of the European Commission, Ursula von der Leyen, has called for more sanctions on Russia. Europe stands with Poland after an airspace violation and is looking to speed up the phase-out of Russian fossil fuels. Plans are underway to impose sanctions on other countries that support Russia. A new financial strategy is being developed to help Ukraine using Russian assets that have been frozen. Additionally, an ‘Eastern flank watch’ program will be created to improve surveillance of countries near Russia.

Drone Wall For Protection

A drone wall will also be built to enhance security. However, this will increase the financial strain on European economies, which are already dealing with rising defense budgets and energy costs. Inflation remains a concern, along with worries about deficits and increasing yields. Discussions from Brussels indicate that markets may experience more volatility soon, especially since today’s date is September 10, 2025. The VSTOXX index, which measures market fear in Europe, rose to 21 this morning, suggesting traders are looking for protection. If any specific actions are taken, implied volatility will likely increase, raising the cost of options across the board. The euro may face renewed pressure against the US dollar and other safe-haven currencies. Higher energy costs and growing deficits are weighing on the euro, which has already dropped to 1.0750 against the USD. Traders might start to buy put options on the euro, recalling how it struggled in 2022-2023 due to energy security concerns. Stricter sanctions on Russian energy will likely drive up oil and natural gas prices as winter approaches. Dutch TTF natural gas futures for next month surged 6% to €45 per megawatt-hour, highlighting the market’s sensitivity. Buying call options on Brent crude or European gas futures may be a smart hedge against an energy crisis.

Impact On Equity Markets

For equity markets, this points to a challenging time for overall European indices like the Euro Stoxx 50. However, the announcement of the “drone wall” and rising defense budgets will continue to benefit certain sectors. We expect traders to buy put options on broad market ETFs while also purchasing calls on major defense contractors— a strategy that has been successful since early 2024. Concerns about deficits and rising yields pose a direct threat to government bonds. The yield on Germany’s 10-year bund has climbed above 2.8% this week due to ongoing inflation data. Additional spending commitments from the EU will likely push yields higher, so selling bund futures or using interest rate swaps may be wise to prepare for rising rates. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now