French finance minister, Eric Lombard, commented on the trade deal framework with the US, describing it as the best compromise available. He noted ongoing efforts to secure tariff exemptions for wines and spirits.
Lombard’s remarks suggest cautious optimism, contrasting with recent more severe tones. He indicated possible painful effects on the European economy if the current deal is completed.
Trade Deal Framework
We are seeing the new trade deal framework with the US being described as the best possible compromise. This language, despite its positive spin, hints at underlying tensions and the potential for economic pain for Europe. The market has remained cautious, with the Euro Stoxx 50 Volatility Index (VSTOXX) just ticking up to 16.5 after weeks of complacency.
Given this cautious tone and the potential for talks to falter over details, we believe it is wise to look at volatility. With the VSTOXX still well below the highs of over 25 we saw during the banking stress in early 2024, implied volatility remains relatively cheap. Buying out-of-the-money puts on indices like the German DAX could be a cost-effective hedge for the coming weeks.
The specific mention of wines and spirits puts a spotlight on European luxury and beverage stocks. Companies in this sector have seen a solid performance this year, but this rally now seems fragile as tariff exemptions are not yet secured. We are looking at selling call options against these positions to generate income, betting that this tariff uncertainty will cap any further significant upside.
European Automotive Sector And Exchange Rates
We must not forget the European automotive sector, which is always a sensitive point in trade talks with the US. We remember the market swings back in 2018 and 2019, where German auto stocks reacted sharply to any tariff news. With the latest EU auto export figures to the US for June 2025 already showing a 2.8% dip year-over-year, any negative surprise could hit this sector hard.
The EUR/USD exchange rate will be a key barometer for sentiment on this deal. The pair has been stuck in a tight range around 1.09 for most of July 2025, showing the market’s indecision. We see an opportunity using derivatives to bet on the euro weakening if the final deal terms appear more painful for Europe than currently priced in.
