Insights 
VT 
European indices displayed varied outcomes at week’s end: Germany’s DAX fell 0.35%, while France’s CAC remained nearly unchanged with a 0.01% increase. The UK’s FTSE 100 rose by 0.22%, Spain’s Ibex dipped 0.04%, and Italy’s FTSE MIB advanced by 0.46%.
Over the trading week, Germany’s DAX increased slightly by 0.14%, and France’s CAC decreased by 0.08%. The UK’s FTSE 100 grew by 0.57%, Spain’s Ibex declined by 0.14%, and Italy’s FTSE MIB rose by 0.58%.
Anticipation for Tariff Adjustments
Looking ahead, there is anticipation for the August 1 deadline regarding tariff adjustments. The potential increase in tariff levels to 30% is notable. Speculation suggests that even with some agreements, the lowest possible tariffs could be around 10%, provided there are no tariffs from the EU. There is a possibility that the tariff levels might remain higher than anticipated.
The current U.S. administration appears to embrace tariff revenues, with expectations that other inflation pressures may subside.
We see the mixed performance across European markets as a sign of indecision ahead of a major catalyst. The markets are essentially treading water, with indices like the DAX and Ibex barely moving over the week. This lack of conviction often precedes a significant move.
Focus on US Tariffs
The primary focus for us is the looming threat of increased US tariffs, which could jolt markets out of this slumber. European volatility, as measured by the VSTOXX index, recently spiked above 18 on political news in France, showing how sensitive the market is to uncertainty. A trade war escalation would likely send this measure much higher, as we saw during the 2018-2019 trade disputes when the US VIX jumped over 40% on tariff news.
The perspective from the former President suggests that tariff revenues are beneficial and that other inflationary pressures will subside. In fact, recent US inflation data for May showed a cooling to an annual rate of 3.3%, which could embolden a more aggressive stance on trade policy. This makes the risk of higher duties more credible than some traders might believe.
Given this backdrop, we believe it is prudent for traders to buy protection for their equity portfolios. Purchasing put options on major indices like the Euro Stoxx 50 or the DAX can act as insurance against a sharp downturn. This strategy effectively sets a floor on potential losses if trade negotiations sour.
Alternatively, for those looking to profit from the anticipated turbulence itself, we are looking at volatility strategies like straddles or strangles. These positions are built to profit from a large price swing in either direction, which seems highly probable. The goal is not to bet on direction, but on the simple fact that the market will stop treading water and start moving sharply.
