Eurostoxx futures rose by 0.3% during early European trading. This comes as markets stabilised after the turbulence caused by the US jobs report on Friday.
In Europe, German DAX futures increased by 0.4% while UK FTSE futures went up by 0.3%. In the US, S&P 500 futures edged higher by 0.1%, following some last-minute buying after a dip last week.
Market Participants Remain Cautious
Market participants remain cautious as the new week begins. The upcoming US inflation data on Thursday will be closely monitored, even though it falls within the FOMC blackout period.
We’re seeing a slightly positive start to the week, with European and US futures ticking up after some late-session buying saved Wall Street from a worse finish last Friday. This suggests a cautious mood as we digest the fallout from the latest US jobs report. The market is clearly on its toes heading into a new week of trading.
The US jobs report on September 5th showed a robust 210,000 jobs added, beating expectations, with wage growth remaining sticky at 4.2% year-over-year. This economic strength initially cheered investors but later fueled concerns that the Federal Reserve will need to keep its policy tight. We saw this play out in the bond market, with the 10-year Treasury yield briefly touching 4.35% before settling back down.
All attention now shifts to the US inflation data scheduled for this Thursday, which is the last crucial report before the FOMC meeting blackout period ends. Analysts are forecasting the upcoming headline CPI to print at 3.4%, a slight increase from last month’s 3.3% reading. A number higher than this will likely cause significant market turbulence.
Attention Shifts to US Inflation Data
This data is critical because fed funds futures are currently implying a roughly 45% chance of another rate hike at the September 17th FOMC meeting. A hot inflation print could easily send those odds above 50%, forcing a significant repricing in risk assets. We are positioned for an increase in volatility around this release.
Given this upcoming event risk, we expect to see the VIX index, which closed last week near 14, climb higher in the coming days. Derivative traders should consider strategies that benefit from this potential rise in implied volatility, such as buying straddles on major indices. These positions can profit from a large price swing in either direction following the inflation report.
In Europe, the gains in the Eurostoxx are also supported by the European Central Bank’s decision last week to hold rates steady. However, with service sector inflation still running hot across the continent, any signs of persistent US inflation could dampen sentiment here as well. We are watching currency derivatives, as a hawkish Fed surprise could strengthen the dollar and weigh on European exporters.
