Eurostoxx futures rose by 0.2% in early European trading, indicating a steadier mood after a prior rebound. Meanwhile, German DAX futures increased by 0.3%, while UK FTSE futures remained flat. European markets are currently focused on the recent trade deal between the US and the EU, sparking discussions about its quality. This week, the euro area will release Q2 GDP and CPI figures, which will be of interest, alongside typical month-end financial movements. In the US, futures are seeing some stability after a less active performance previously. S&P 500 futures have edged up by 0.1%. Attention is now directed towards upcoming earnings from Microsoft and Meta, with these announcements set to follow the Federal Reserve meeting. We are seeing a cautious tone in the market, with European futures slightly up but facing resistance. The recent rebound feels tentative, especially with major economic data for the Eurozone due this week. Traders should be wary of chasing this small rally before we get more clarity. The new US-EU trade deal is a positive, but the market seems to think this is as good as it gets for now. We are looking at upcoming Q2 GDP figures for the Euro area, with forecasts centering around a modest 0.2% growth, reflecting the sluggish recovery since the energy crisis of late 2023. With core inflation still expected to print above the ECB’s 2% target, any upside surprise could force the central bank’s hand, making options that protect against a sharp downside move look attractive. In the US, the market is digesting the Federal Reserve’s decision to hold rates steady while signaling that a cut is not imminent. All focus now shifts to Microsoft and Meta earnings after the bell, which will set the tone for the tech sector and the broader S&P 500. We saw back in 2024 how a miss from just one of these giants could drag the entire index down for days. Volatility, as measured by the VSTOXX index, has been trending near its lowest levels since early 2024, currently sitting around 14.5. This suggests a degree of complacency in the market, creating an opportunity for those willing to bet on a spike in uncertainty. Buying VSTOXX futures or long-dated put options on the Eurostoxx 50 could be a cost-effective hedge against the wave of event risk on the horizon. Given this backdrop, traders should consider positioning for a potential breakout rather than a continued slow grind higher. Protective puts on indices like the German DAX could offer a hedge against disappointing GDP or CPI numbers from Germany. With month-end portfolio adjustments also in play, expecting choppy, two-way action is the most sensible approach in the coming sessions.

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