Insights 
VT 
Trade Policy Impact
The US markets remain closed today in observance of the 4th of July holiday. A cautious atmosphere prevails as countries await potential tariff increases on 1 August, influenced by Trump’s recent trade policy actions.
This morning’s slide across European markets reflected growing wariness among participants. With the Eurostoxx shedding 0.6% and similar losses in major indices, sentiment has taken a softer tone. The DAX’s modest 0.2% decline and France’s steeper 0.8% fall served as fresh reminders of how trade-sensitive these benchmarks remain. In the UK, a 0.3% drop in the FTSE was relatively measured, although declines across Spain and Italy, while smaller in scale, signalled broader selling. Across the Atlantic, with S&P 500 futures slipping by 0.3% ahead of the US reopening, there’s no immediate uplift to shift the mood.
Markets have thinned due to the Independence Day holiday across the US, and that lull has revealed more unease than calm. The impression now isn’t one of dramatic movement, but of positioning and caution built into forward contracts. With tariff increases expected from the first of next month, and given recent announcements from the former US president, the current pricing reflects more than simple holiday lull.
These figures suggest a need to manage exposure with far more care in the near term. The emphasis has moved towards reduced directional conviction, and more nuanced outcomes. With implied volatility sitting near its lower range across key across-the-curve maturities, there’s little appetite for large directional stretches. We’ve seen that the de-risking is quiet, methodical — not born out of panic, but built on considerations of margin efficiency and carry.
Forward Contract Adjustments
When Trump outlined the next steps, it wasn’t merely rhetoric. The proposed tariff moves are forward-dated, but the preparation, from a derivatives standpoint, must be front-loaded. That means contracts priced for August expiry — and possibly those stretching to September — are already feeling the pressure of readjustment.
It’s worth noting that Vega exposure, especially in short-dated contracts, is not offering the cushion some expect. With fluctuations being met with thinning volume, spreads may widen more than anticipated. For us, the move should be to lean into calendar spreads in skew-neutral structures. This allows one to participate should realised volatility nudge higher, but limits damage if price action remains compressed.
In gamma, there’s no urgency to swing large. Let the index trade prove where the pockets of demand truly sit. As participation returns via the US re-entry, we should expect adjustments from asset allocators who’ve kept exposure light ahead of the policy shift.
Caution, then, is active. The macro calendar remains bare, but sentiment alone is generating enough movement to shift skew profiles. Through to mid-month, we’ll be watching open interest in OTM puts — adjustments there will guide how broad the protection bid has become.
