Market reactions depend on both the range of forecasts and the distribution of expectations. A surprise occurs when actual data differs from what was anticipated. Even if the data is within the expected range, if it is closer to the lower end, it can still create a surprise.

Non-Farm Payrolls Estimates

Non-Farm Payrolls estimates vary from 0K to 176K, with most predictions ranging from 75K to 130K, and a consensus at 110K. The unemployment rate consensus is at 4.2%, with estimates between 4.0% and 4.3%. For Average Hourly Earnings year-on-year, the consensus stands at 3.8%, with forecasts between 3.4% and 3.9%. Monthly earnings are expected to have a consensus of 0.3%, with estimates ranging from 0.2% to 0.4%. The Average Weekly Hours forecast is centered at 34.2 hours, with some estimates going up to 34.3 hours. The Federal Reserve Chair noted the unemployment rate as a key focus area, indicating its strong influence on market assessments. It’s crucial to understand that how forecasts are grouped matters more than just the consensus number itself. The market’s true expectation for Non-Farm Payrolls clusters between 75K and 130K. Thus, a reading below 75K would be a significant negative surprise, likely leading to a big market reaction.

Analyst Expectations and Market Reactions

The unemployment rate is the key indicator to monitor, as emphasized by Fed Chair Powell. A substantial 83% of analysts predict the rate will remain at 4.2%. If the rate were to rise to 4.3%, it would likely shock the market, causing a sharp sell-off in stocks and a rally in bonds due to increased odds of a rate cut. Following two weak job reports in late 2024, the Fed shifted towards easier policy. With the market currently expecting decent results, any hint of weakness could lead to a major price movement. This is reflected in the options market, where implied volatility for the S&P 500 is declining, indicating some complacency. Wage growth is another significant factor, with the consensus at 3.8% year-over-year, marking the slowest wage growth since early 2024. A number below this, like 3.7% or less, would strengthen the argument for controlled inflation, giving the Fed more flexibility. Given these circumstances, derivative traders should prepare for a larger reaction to a weak report compared to a strong one. Buying out-of-the-money puts on major indices or calls on Treasury bond futures could be a wise move. A payroll number below 75K combined with a 4.3% unemployment rate would create a highly impactful situation. We have observed the NASDAQ 100 move over 2% due to similar data points multiple times in the 2023-2024 period. Traders should have strategies ready for this type of downside risk. Create your live VT Markets account and start trading now.

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The Eurozone’s preliminary Consumer Price Index (CPI) for July shows a yearly increase of 2.0%. This is the same as the previous month and slightly higher than the expected 1.9%. At the same time, the Core CPI, which excludes unstable items like food and energy, increased by 2.4%. This figure is unchanged from June and above the forecasted 2.3%. These numbers indicate steady inflation in the Eurozone, according to Eurostat’s latest data released on August 1, 2025. The Core CPI remaining at 2.4% supports economic evaluations ahead of the European Central Bank’s September meeting.

Implications For The European Central Bank

The latest inflation data for July shows core prices are stable, remaining at 2.4%. This suggests that the European Central Bank may keep interest rates unchanged at their September meeting. The steady inflation situation eases any immediate need for them to make changes. The ECB has maintained its main interest rate at 3.50% since its last increase in March 2025. This new data backs their cautious approach, especially since recent German ZEW Economic Sentiment figures revealed a surprising drop in confidence. With Europe’s economic engine slowing down, the central bank has another reason to pause. For those trading interest rate derivatives, this means the likelihood of a rate hike in the near future is very low. We can expect short-term interest rate futures to reflect this stability, making bets on higher rates riskier. It may be a good time to explore strategies that profit from a lack of changes, as the situation is likely to remain clear until September.

Impact On The Markets

This stability should also keep market volatility down. The VSTOXX, a key indicator of Eurozone stock market volatility, has declined, dropping from over 20 in spring 2025 to around 16 last week. Selling options to gain premium could be a suitable strategy as we expect a quiet period. Regarding the euro, the ECB’s pause puts it in a stable position against other currencies. For instance, recent US inflation data also showed a slowdown, which eases pressure on the Federal Reserve to increase rates further. This suggests that the EUR/USD pair may trade within a narrow range in the coming weeks, providing opportunities for range-bound derivative strategies. Create your live VT Markets account and start trading now.

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European stocks had a rough start to the month due to concerns about tariffs. The overall market felt cautious, especially after Apple and Amazon reported their earnings, highlighting the impact of tariffs. S&P 500 futures fell by 1% after struggling to hold new record highs. Nasdaq futures dropped by 1.1%, and Dow futures were down by 0.9%. In Europe, both the DAX and CAC 40 declined by 1.7%, wiping out July gains for French stocks.

US Jobs Report

The upcoming US jobs report is generating anticipation. Strong numbers could reinforce the Federal Reserve’s cautious stance. This might lead to further declines in equity markets before the weekend. Currently, Fed funds futures indicate about a 39% chance of a rate cut in September, suggesting potential market shifts ahead. The market mood feels similar to the trade war jitters of 2019. However, the current anxiety stems from rising geopolitical tensions and stubbornly high inflation, not just tariff threats. This creates a tough climate for equities, as major indices in Europe and the US enter August on a weaker note. Fear is growing in the market, shown by the VIX index, which recently rose from its summer lows near 12 to over 18 this week. This increase in implied volatility makes options more expensive, leading traders with long stock positions to consider protective puts as a costly, yet possibly necessary strategy. The sharp rise indicates increasing uncertainty as we head into autumn. Everyone is watching today’s US jobs report for July. Economists predict around 190,000 new jobs, which would usually be seen as good news. However, a strong number today could be viewed negatively for stocks since it gives the Federal Reserve more reasons to postpone any potential interest rate cuts.

Futures Market Outlook

This situation is reflected in the futures market. The chances of a Fed rate cut by December have dipped to just under 50% from over 70% a few weeks ago. This change suggests traders might consider selling call options on interest rate futures, anticipating that rates will remain higher for longer. The recent Core PCE inflation reading for June, at a steady 2.9%, is the main reason for this shift in outlook. Create your live VT Markets account and start trading now.

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The UK’s final manufacturing Purchasing Managers’ Index (PMI) for July was 48.0, a slight change from the initial reading of 48.2. This is an improvement from June’s 47.7, showing a slight easing in the manufacturing sector’s decline. In July, jobs in the sector fell at a quicker pace than in previous months. Input costs and selling price inflation remained mostly stable. Although factory output saw a small increase and future output expectations are at their highest since February, challenges in both domestic and international markets persist.

Domestic And International Challenges

On the home front, rising costs, including higher minimum wages and employer National Insurance Contributions, continue to make people hesitant to spend. Internationally, geopolitical tensions and trade uncertainties add to the hurdles faced by UK manufacturers. The sharp drop in employment rates is a significant concern, with current job cuts resembling those experienced during the pandemic in 2020. As the Autumn budget approaches, manufacturers are expected to focus on stability, hoping for fiscal measures that could support recovery. The UK manufacturing sector shows signs of slowdown, with a PMI of 48.0 for July. This marks the seventh consecutive month of readings below 50.0, which signifies contraction. While inflation remains stable at 2.8% according to the latest Consumer Price Index (CPI), sluggish activity will increase pressure on the Bank of England.

Impact On Currency And Stocks

This economic weakness is likely to push down the British Pound in the coming weeks. The domestic economy appears fragile, with companies reluctant to spend and a weak export market. Similar weak data in late 2023 led to a notable drop in GBP/USD, suggesting traders might be looking to sell the pound against the dollar. The report also indicates challenges for UK-focused stocks, making options to bet against the FTSE 250 index appealing. Since the FTSE 250 is more vulnerable to the domestic economy, it has underperformed the FTSE 100 by nearly 4% in 2025. With job cuts accelerating at the fastest rate since the pandemic lockdowns of 2020, corporate earnings for many domestic firms are jeopardized. Due to the disappointing PMI data and recent GDP figures showing only 0.1% growth in the second quarter, interest rate markets may begin to price in a rate cut more aggressively. Although the Bank of England has kept rates steady, this report raises the likelihood of leaning towards easing policy later this year. Traders could prepare for this by purchasing short-term interest rate futures, which would increase in value if the central bank hints at a cut. Looking forward, we anticipate a cautious period leading up to the Autumn budget, creating uncertainty. This situation suggests that implied volatility for UK assets may start to rise. Traders should think about strategies that benefit from this, such as buying straddles on key indices or currency pairs to protect against major policy surprises. Create your live VT Markets account and start trading now.

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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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