European markets showed mixed trends with key focus on upcoming US data. The Bank of Japan’s policy impacted USD/JPY, keeping it at three-week lows. The IMF noted no need for a substantial US rate cut soon. UK’s Q2 GDP rose by 0.3% compared to the expected 0.1%, while June’s monthly GDP increased by 0.4%. Eurozone’s Q2 GDP saw a 0.1% rise, maintaining expectations. France’s CPI held steady at 1.0% year-on-year, and Switzerland’s producer and import prices fell by 0.2% monthly.
In the market movements, the Japanese yen led, while the New Zealand dollar lagged. European equities experienced gains, although S&P 500 futures remained consistent. The US 10-year yield decreased by 3.2 basis points to 4.207%. Gold traded steadily at $3,353.96 and WTI crude oil rose by 0.4% to $62.91. Bitcoin dropped by 1.7%, sitting at $120,805.
Muted Movements in US Futures
There were muted movements in US futures, with expectation for more data release and retail sales figures forthcoming. European stocks gained traction influenced by Wall Street’s positive sentiment. Other markets showed restrained appetite; gold remained stable, and cryptocurrencies, including Bitcoin and Ethereum, experienced slight setbacks from recent highs.
The Fed seems unsure about a September rate cut, pushing back on a big move but leaving a smaller one on the table. This uncertainty means we should watch for a spike in market volatility around the upcoming US PPI and retail sales data. The VIX index is already creeping up from its summer lows, now sitting around 17, suggesting traders are preparing for a move.
We are seeing the US dollar pull in different directions, which creates opportunities in currency options. The yen is strong due to talk about the Bank of Japan potentially shifting its policy, a view supported by last week’s strong Japanese wage growth data. A hot US inflation number could quickly reverse the dollar’s slide against the yen, making USD/JPY call options an interesting play.
Diverging Global Economies
The Eurozone economy is barely growing, confirmed by the latest 0.1% GDP figure, which is pinning EUR/USD near 1.1700 due to large option contracts. In contrast, the UK’s surprise 0.3% GDP growth is a significant improvement after it narrowly avoided a recession in late 2024. This divergence could favor the pound over the euro in the weeks ahead.
In equity markets, we are seeing a pause as US index futures are flat ahead of the economic data. This setup, where the market has priced in a rate cut that officials have not confirmed, feels a lot like what we saw in late 2018 before the Fed eventually pivoted in 2019. For now, using options to define risk, like buying puts on the S&P 500, could be a prudent way to hedge against a hawkish data surprise.
