Insights 
VT 
Lawmakers in Europe are voicing concerns about the trade deal between von der Leyen and Trump. French prime minister François Bayrou criticised it, describing it as a move away from protecting shared interests.
In Germany, Chancellor Merz supports the deal, but there is domestic discontent. Industry representatives have labelled it “inadequate” and warned of potential economic challenges.
Hungary and Italy’s Reaction
Hungarian prime minister Viktor Orban criticised von der Leyen’s approach, describing her as outmatched by Trump. Italy’s Brando Benifei, head of the parliament’s committee on US relations, expressed dissatisfaction and stressed the need for detailed examination of the agreement.
Overall, there is a general belief that the deal appears to be more about damage control than a beneficial agreement for Europe.
Given the political backlash described by figures like Bayrou, we anticipate a rise in market uncertainty in the coming weeks. Europe’s main volatility index, the VSTOXX, has been trading at relatively low levels around 14, making it inexpensive to buy protection against sudden market swings. We see this as an opportunity to purchase volatility derivatives before sentiment sours further.
The negative reaction from German industry and the cautious remarks from Benifei signal potential headwinds for European stocks. We believe it is prudent to establish downside protection by purchasing put options on major indices like the Euro Stoxx 50 and the German DAX. Historically, during the 2018 US-EU trade disputes, the DAX saw a correction of over 15%, indicating how sensitive it is to transatlantic trade friction.
Currency and Economic Impact
Criticism of the deal from leaders like Orban can weaken confidence in the euro, especially when compared to a resilient US dollar. Recent data shows the dollar index (DXY) strengthening while the EUR/USD exchange rate has struggled to stay above the 1.07 mark. We will be looking at derivatives that profit from a decline in the EUR/USD currency pair.
The domestic disagreement faced by Merz points directly to pressure on Germany’s export-oriented economy, which is already showing signs of strain. German factory orders recently saw an unexpected slump, falling by 0.4% when a rise was forecast, underscoring existing industrial weakness. Consequently, we are considering bearish positions on specific German automotive and manufacturing sector stocks.
