The 39% tariff in the United States does not apply to pharmaceuticals exported from Switzerland. Pharmaceuticals are Switzerland’s top export, accounting for about 40% of total export value, with 60% of these drugs going to the US. This tariff exemption is significant due to the importance of pharmaceuticals in Switzerland’s economy. Malaysia has also confirmed that its 19% tariff will not include pharmaceuticals and semiconductors. There has been no request or agreement from the US regarding Malaysian rare earth supplies during tariff discussions. Malaysia is the second-largest exporter of rare earth minerals to the US, following China, and it holds about 13% of the market, compared to the rest of the world’s 17%.

Trade Tensions Easing

Recent trade tensions seem to be calming down, reducing the risk of a major crisis. The VIX, which had been close to 20 in late July 2025, is expected to drop. Traders might benefit from selling volatility now that the exemptions for Switzerland and Malaysia have removed a lot of market uncertainty. The Swiss franc is likely to strengthen against the dollar. Since pharmaceuticals make up a large part of Swiss exports to the US, this tariff exemption offers significant economic relief. In late 2023, the CHF rallied sharply when trade fears were proven unfounded. Current trends suggest we may see a similar rise now. This news particularly reduces risks in the pharmaceutical sector, which has been underperforming. The Health Care Select Sector SPDR Fund (XLV) has lagged behind the S&P 500 by nearly 4% in 2025, and this could be the trigger for it to catch up. We anticipate increased activity in call options for major pharmaceutical and healthcare ETFs in the upcoming weeks.

Boost for Semiconductor Sector

The exemption for Malaysian semiconductors also supports the tech sector. The global chip supply chain, which experienced a sales drop per the latest June 2025 industry report, gains stability from this development. This news strengthens the case for investing in semiconductor ETFs like the SMH, as a major supply chain risk has been addressed. However, the situation with rare earths brings a different challenge. Malaysia’s statement about having no agreement with the US means the supply issue for minerals outside China is still unclear. This uncertainty reminds us of the price spikes in 2019, which could lead to volatility for miners, making options on an ETF like REMX an intriguing option for future developments. Create your live VT Markets account and start trading now.

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The Eurozone’s final manufacturing PMI for July is 49.8, staying the same as the preliminary reading and slightly increasing from 49.5 last month. Production has seen a small rise, even though new orders have slightly decreased. The PMI data shows that smaller economies in the Eurozone, like Spain and the Netherlands, are experiencing growth. Meanwhile, Ireland and Greece are still expanding. In larger economies like Germany, France, and Austria, the manufacturing recession seems to be easing, which is a hopeful sign for recovery.

Current Obstacles in France

France is currently hindering manufacturing growth in the Eurozone, with production dropping for the past two months, even as employment has seen a small rise. On the other hand, Germany is seeing production growth, but employment has decreased. France is dealing with a strict budget and rising political risks, while Germany enjoys stable fiscal policies. Additionally, the Eurozone’s supply chains are under strain, with longer delivery times not linked to increased demand. Issues with supply chains are worsened by changing U.S. tariff policies and geopolitical conflicts, affecting efforts to maintain sustainability in the Eurozone’s manufacturing sector. The Eurozone manufacturing sector shows some improvement but has not yet reached expansion, with a PMI of 49.8. This is the fourth month of improvement since it hit a low of 46.2 in March 2025. Traders should be cautious with European equities, as this recovery remains very fragile.

Emerging Opportunities and Risks

The details suggest ongoing volatility, fueled by political uncertainty in France and ongoing supply chain issues. The VSTOXX index, which measures fear in Europe, is hovering around 20, notably higher than its historical average from the late 2010s. In this environment, option strategies that limit risk and take advantage of price movements are more favorable than direct bets on the market. Germany is becoming a strong area, with rising production and a more stable political situation. Recent data backs this up, as Germany’s IFO Business Climate Index for July reached a 12-month high of 92.5. There are opportunities to buy call options on the DAX index or top German industrial companies that benefit from this positive trend. Conversely, France’s manufacturing sector seems to be a major drag on the Eurozone. This is highlighted by France’s latest INSEE business confidence indicator, which unexpectedly dropped to 97, the lowest since the political unrest of early 2025. A pairs trade, where one goes long on German assets and shorts French ones through futures or CFDs, could effectively exploit this difference. We also need to keep an eye on the ongoing strain on supply chains, which is causing longer delivery times for goods. Current delays are similar to the disruptions seen after the pandemic in 2021 and 2022, now primarily driven by geopolitical tensions instead of health issues. This poses a risk for manufacturers that depend heavily on just-in-time inventory systems. This PMI reading is likely to keep the European Central Bank inactive for now. Being just below the key level of 50 does not support any tightening of monetary policy. The interest rate futures market supports this, with less than a 10% chance of an ECB rate hike before the end of the year. Create your live VT Markets account and start trading now.

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Germany’s final manufacturing PMI for July is 49.1, up slightly from 49.0 in June, but still below the preliminary reading of 49.2. This indicates ongoing challenges, as a PMI below 50 signals a contraction. Job losses are slowing down, reaching their lowest point in nearly two years. Although the headline index shows some improvement, it has not yet crossed the line into expansion.

Market Optimism Remains Cautious

Companies are still reducing inventory, reflecting a careful approach and uncertainty about a sustained recovery. This cautious mindset is leading to less optimism in the market. There is a positive sign from foreign markets, where demand is picking up, with export orders increasing for four straight months. The recent tariff agreement between the EU and U.S. might affect Germany’s exports to the U.S., but overall demand could steady. The production index indicates output has been growing for five months, though the pace of growth is slowing. While the capital goods sector is thriving, the consumer goods sector is lagging, suggesting that international demand is stronger than domestic consumption. As of August 1st, 2025, the latest figures from German manufacturing show a slow and uneven recovery. Although the PMI has risen, it remains below the crucial 50-point mark, indicating that a strong rally in German stocks is unlikely soon. The DAX index has been range-bound between 18,500 and 19,000 for six weeks, and this report doesn’t provide a reason to expect significant movement. Due to the cautious sentiment among companies and continued inventory cuts, there are opportunities to sell volatility. With companies reluctant to shift into a full recovery mode, the market is likely to remain unpredictable and stable through August. Traders may want to consider selling call options at the top of the current DAX range to take advantage of the lack of strong upward momentum.

Foreign Demand Outpaces Domestic Consumption

One key takeaway is the contrast between strong foreign demand and weak domestic consumption. While capital goods production is thriving, the consumer goods sector is slowing. This situation suggests a pairs trading strategy could be effective: buying shares of major exporters like Siemens, which are performing better than the index, while shorting consumer-oriented companies. Weak domestic conditions are further highlighted by last week’s German retail sales figures, which fell short of expectations, potentially putting pressure on the Euro. The European Central Bank is likely monitoring this consumer weakness closely, especially since July’s flash inflation estimate dropped to 1.9%. This scenario may justify purchasing put options on the EUR/USD pair, betting on potential currency weakness ahead. The new tariff agreement with the U.S. presents a short-term risk, as it could dampen the recent spike in export orders to America. This may create challenges for the DAX in the near future and reinforce a cautious outlook. However, the agreement might reduce overall uncertainty, which helps explain why implied volatility on the DAX has decreased to around 12, its lowest this year. We can look back to late 2023 for a similar scenario. At that time, better industrial data didn’t immediately boost consumer confidence, resulting in a stagnant market for an entire quarter. History suggests that until there is a clear recovery in domestic demand, any rallies in the broader market should be approached with skepticism. Create your live VT Markets account and start trading now.

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The new US tariffs are the first results of a trade agreement, with a cap set at 15%. This move aims to provide more stability for businesses, helping EU exports become more competitive. Right now, this setup is a temporary measure to facilitate ongoing negotiations. It is not a full trade deal, and the EU has made this clear. The 15% tariffs are only a short-term solution, similar to past agreements between the US and China.

Potential Deterioration

There is a chance that the situation could worsen if the EU continues to see the agreement as unfair over time. However, the EU might choose to wait until the end of Trump’s term before making any decisions. As of August 1, 2025, the new US-EU trade framework with its 15% tariff cap is bringing a brief period of calm. For derivative traders, this means that implied volatility on trade-sensitive stocks, particularly in the European automotive and industrial sectors, is likely to decrease in the coming weeks. The VSTOXX index, Europe’s main volatility measure, has already fallen by 5% in the last week due to this news, showing the market’s short-term relief. With this expected stability, strategies that benefit from lower volatility, like selling covered calls or credit spreads on European ETFs like the FEZ, could be advantageous. The clear 15% tariff limit eases one significant source of uncertainty, making it easier to predict a trading range for these assets. This strategy allows us to collect premiums while the market adjusts to the current friendly relationship between the two economic regions.

Lessons From Past Trade Disputes

Yet, we must remember the lessons learned from trade disputes between 2018 and 2020, when market sentiment could change rapidly. The current deal is temporary, meaning this stability is delicate and could fall apart later this year or in early 2026. Therefore, while we take advantage of the current calm, we also seek low-cost ways to protect ourselves against a potential breakdown in negotiations. Looking ahead, it may be smart to purchase longer-dated protection, such as out-of-the-money put options expiring in six to nine months. Recent data from German industrial output showed a slight 0.2% increase, highlighting the EU’s economic vulnerability to future trade disruptions. These longer-term options serve as insurance if the EU decides the deal is unfair or if political tensions arise again. The political aspect, suggesting that the EU might be waiting out the current US administration, adds another layer to consider. This means that while the next few months may be calm, volatility could surge around significant political events in the lead-up to the next election cycle. We’re paying close attention to political polling numbers to help time our long-term volatility trades. Create your live VT Markets account and start trading now.

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France’s manufacturing PMI for July was revised down to 48.2 from an earlier estimate of 48.4. This suggests that the sector is still facing significant challenges. New factory orders dropped sharply, marking the biggest decline since January. Business confidence has also fallen to its lowest level since February.

Worsening Economic Outlook

The economic outlook for France’s manufacturing sector seems to have declined as the second half of the year begins. There were some signs of recovery in the first half, but recent data shows a slowdown. While the overall manufacturing index rose, it was overshadowed by fewer orders and poorer business expectations. While there is hope for economic improvement in 2025, the drop in orders and expectations is concerning. Recent easing of EU regulations and cuts in interest rates were anticipated to boost industry activity. However, political uncertainty and global trade tensions are hampering investments, leading to possible order cancellations. Delivery times are now much longer due to labor shortages, a lack of goods, and strikes. Supply chains may need to adjust due to new tariffs and changes within companies. Although the EU-US 15 percent tariff agreement could offer some stability, worries about its long-term viability persist due to the unpredictable nature of US trade policy. The finalized manufacturing numbers for July in France confirm a clear slowdown is occurring. Hopes for a recovery in the second half are now uncertain, especially as new orders are declining at the fastest rate since the year’s start. We should consider preparing for further weakness in French stocks by purchasing put options on the CAC 40 index.

Economic and Political Challenges

This decline in manufacturing is occurring alongside persistently high inflation, creating a tough environment. The latest inflation data for the Eurozone in July 2025 showed a rate of 2.8%, still well above the central bank’s target, limiting its ability to respond effectively. This mix of slowing growth and high inflation highlights the need for caution and makes defensive strategies more appealing. The political climate in France, driven by the government’s new austerity plan, is impacting business confidence. This situation mirrors what happened during the 2011-2012 sovereign debt crisis when fiscal tightening led to a prolonged economic downturn and market volatility. Given this historical context, we see the current political environment as a significant obstacle for domestic investment and growth. This negative outlook for Europe contrasts with the stronger US economy, putting downward pressure on the euro. The EUR/USD exchange rate has already dropped by over 2% in the last month, recently hovering around the 1.07 level. We believe there’s potential for the euro to weaken further, and traders should look to sell on any strength. Overall uncertainty is increasing due to poor economic data, supply chain issues, and an unpredictable global trade environment. The VSTOXX, which tracks Eurozone equity market volatility, has been rising and is now above the 18 level, a significant increase from earlier lows this year. We see value in buying call options on the VSTOXX to protect against and potentially profit from expected market volatility in the coming weeks. Create your live VT Markets account and start trading now.

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The latest data from HCOB shows Italy’s manufacturing PMI at 49.8 for July. This is slightly above the expected 49.0 and up from June’s 48.4. Even though the index is below 50.0, indicating ongoing contraction, the declines in output and new orders are less severe.

Italy’s Manufacturing Outlook

For the first time in nearly three years, Italy experienced a rise in input stocks while inflationary pressures returned. Italian manufacturers are boosting their inventories, likely due to supply chain issues, fewer orders, and increased business confidence. Optimism is growing above the long-term average, suggesting that some companies expect demand to increase. The EU–US trade agreement aids Italian exporters by replacing a potentially high 30% tariff with a 15% duty on certain goods. While this is an improvement, the 15% tariff still poses challenges for Italian competitiveness in the US. Uncertainty remains about how long this deal will last, as recent US trade policies could change the terms. We are starting to see signs of stability in Italy’s manufacturing sector, with the PMI nearing the critical 50.0 growth mark. This indication might lead to a decrease in negative views on Italian assets, such as covering shorts on FTSE MIB index futures. This improvement stands out compared to Germany’s PMI data from last week, which showed a deeper contraction at 47.5. It is important to monitor the increase in input stocks, a change not seen in nearly three years. Historically, such rebuilding of inventories often happens before broader economic recovery and a sustained stock market rally. This growing confidence may support cautious bullish strategies, such as selling out-of-the-money puts on the FTSE MIB to gain premiums.

European Economic Strategies

The return of price pressures coincided with the European Central Bank’s recent decision to keep interest rates unchanged, due to ongoing core inflation. This situation might limit growth for the broader market but could strengthen the Euro. As a result, traders may want to consider taking long positions in the Euro, such as via EUR/USD call options. Despite the clarity provided by the new EU-US trade agreement, the continuing 15% tariff presents ongoing challenges for Italian exporters. Given the sharp market fluctuations seen during the 2024 trade policy disputes, it’s prudent to maintain some downside protection. Keeping long-dated, affordable put options on key industrial stocks could help hedge against any renewed trade volatility. Create your live VT Markets account and start trading now.

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The USDJPY pair is close to a key level as we await the US Non-Farm Payroll (NFP) data. Recent strong US economic figures and Fed Chair Powell’s hawkish remarks have boosted the US dollar. The ADP employment report and second-quarter GDP growth were better than expected, and Powell did not mention any rate cuts in September, which signals a change in interest rate outlook. Market predictions for rate cuts have changed. Now, they expect a reduction of 35 basis points by the end of the year, down from 47 basis points. Investors are paying close attention to the NFP report, particularly the unemployment rate that Powell highlighted. Meanwhile, the Bank of Japan (BoJ) has kept interest rates steady but raised its inflation forecasts, leading to minimal changes in the yen’s value.

Technical Analysis of USDJPY

For the yen to strengthen, we may need weak US data or rising Japanese inflation. Technically, the USDJPY has broken past the 148.30 resistance level and is targeting 151.00. A pullback to 148.30 could happen, but there’s still room for upward movement towards 155.00. In shorter timeframes, the bullish trendline supports upward momentum, as buyers rely on it to push towards new highs. Sellers are looking to see if the price drops to 142.35. Important upcoming events include the US NFP report and ISM Manufacturing PMI. We’re noticing a reduction in the long-standing policy gap between the US and Japan. The Fed has enacted two rate cuts since late 2024 due to a softer labor market, with the unemployment rate now at 4.2% according to the June 2025 report. However, with core inflation stubbornly at 2.8%, questions arise about further easing from the Fed.

Shifts in US and Japan Monetary Policies

The situation in Japan has changed since 2024. The BoJ increased its policy rate to 0.25% to address ongoing inflation, which the latest Tokyo Consumer Price Index shows is at 2.6%. This is a sharp contrast to when Governor Ueda seemed untroubled by yen weaknesses. For derivative traders, the pair is critical, currently trading around 152.50. The 151.20 level, previously a strong resistance we observed through late 2023 and 2024, is now an important support level for the upcoming weeks. Options traders might explore buying puts below 151.00 to prepare for a potential dovish shift from the Fed. All attention is on the upcoming US Non-Farm Payrolls for July, releasing soon. A weak jobs report could trigger new bets for a Fed cut in September, putting pressure on the pair and testing the 151.20 support. Conversely, a strong report could strengthen the Fed’s cautious approach and push us back towards the 155.00 level. Create your live VT Markets account and start trading now.

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Spain’s manufacturing activity saw notable improvement in July, marking the best month of the year for new orders. Production increased, and job growth continued, highlighting a positive trend in manufacturing over recent months. The overall index climbed for the third month in a row. Although increases were moderate, both domestic and international orders grew, showing stable demand.

Industrial Production Prospects

For three months, industrial production has risen, with expectations for further growth thanks to better demand. The US-EU tariff agreement might provide short-term stability, but uncertainty in US policies remains a concern. Employment trends and capacity utilization support this growth. Over the past three months, backlogs of work have increased, while stocks of finished goods have decreased. Manufacturers are hesitant to increase purchases of intermediate goods and are relying on current inventories for production increases. In July, price trends shifted after two months of declines, with both input and output prices rising again, likely due to tariffs. Delivery times for inputs are getting longer, and some of the cost increases are being passed to consumers. This outlook points to increased production, workforce growth, and adjusted pricing strategies among manufacturers. Spain’s manufacturing sector shows strong growth, which helps explain why the IBEX 35 has outperformed the broader Euro Stoxx 50 by nearly 2% over the last month. The final Spanish manufacturing PMI was 52.5 for July, significantly higher than the Eurozone average of 50.8. This highlights a unique opportunity in Spanish assets.

Potential Market Strategies

The report’s focus on rising input and output prices is an important indicator. This aligns with July’s Spanish CPI data, which rose to 2.8%, reversing the cooling trend from the previous quarter. This new price pressure may lead the European Central Bank to adopt a more aggressive stance in upcoming meetings. With ongoing uncertainty surrounding US trade policy and its impact on supply chains, we expect increased market volatility. For options traders, this suggests looking at strategies that profit from price fluctuations in key industrial or shipping stocks. The report’s mention of longer delivery times is a classic sign of potential market instability. One strategic approach could be to focus on relative value trades, preferring Spanish equities over weaker German or French counterparts. This can be expressed by going long on IBEX 35 futures while shorting DAX futures, taking advantage of Spain’s resilient performance. For those dealing with interest rate derivatives, the shift in price dynamics is important. We should consider positioning for a steeper yield curve, as short-term inflation concerns might exceed long-term growth expectations. Historical patterns, like the inflationary trend from 2021-2022 that followed similar supply chain issues, support this view. Create your live VT Markets account and start trading now.

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European stocks started the month with a decline. Key indices showed the following drops: Eurostoxx down 1.2%, Germany’s DAX down 1.3%, France’s CAC 40 down 1.2%, the UK’s FTSE down 0.6%, Spain’s IBEX down 0.8%, and Italy’s FTSE MIB down 1.3%. Market sentiment is cautious as the US prepares to finalize a list of reciprocal tariffs. While Apple and Amazon recently reported positive earnings, worries about the tariffs are affecting risk appetite. US futures also fell, down about 0.4%. Attention is now on the upcoming US labor market report, which could influence the market before the week ends.

US Tariffs Impact

European markets are sharply dropping this morning due to concerns about new US tariffs. This uncertainty is weighing on US futures, even with strong earnings from major tech firms. The US labor market report coming out later today is crucial. Consumer spending data has weakened in the second quarter of 2025, and economists expect Non-Farm Payrolls around 185,000, indicating a cooling job market. If the number is unexpectedly strong, it could be seen negatively, suggesting the Federal Reserve may need to keep its current policies in place. Market fear is rising, with the VIX index, which measures market volatility, increasing over 15% this week and trading above 23. Concerns about tariffs from companies like Apple and Amazon are driving this fear, indicating that no one is exempt from the impact. In this environment, a defensive strategy is advisable for the weeks ahead.

Strategies For Uncertainty

To protect your investments, consider buying put options on major indices like the Eurostoxx 50 or the S&P 500. This will help hedge against further declines if trade tensions worsen or economic data disappoints. These options should be held for 30 to 45 days to cover this uncertain period. Another strategy is to trade volatility itself. With the VIX elevated, purchasing VIX call options or futures could yield profit in case of further spikes in fear. History shows that during the US-China trade war in 2018-2019, high volatility periods rewarded those prepared for it. It’s also important to recall how markets reacted to initial tariffs in 2018, which resulted in sudden drops followed by unpredictable, news-driven trading for months. The current situation between the US and Europe feels similar, suggesting that this is not just a temporary issue but the beginning of a more volatile phase. This pattern favors strategies that capitalize on price fluctuations rather than a clear market direction. Given the rise in implied volatility, selling out-of-the-money call option spreads in certain overbought sectors can be a good way to generate income. This strategy benefits from sideways or downward price movements and a eventual decline in volatility, allowing us to take advantage of the market’s current fears. Create your live VT Markets account and start trading now.

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