European stocks faced a challenging start to the month as tariff concerns weighed heavily on equities. The broader market sentiment remained cautious, with Apple and Amazon earnings underscoring tariff impacts.
S&P 500 futures dropped by 1% after failing to maintain new record highs. Nasdaq futures fell 1.1%, while Dow futures were down 0.9%. In Europe, the DAX and CAC 40 both declined by 1.7%, erasing July gains for French stocks due to the downturn.
Us Jobs Report
The US jobs report is anticipated later, with strong labour market figures potentially reinforcing the Federal Reserve’s cautious approach. This could lead to further declines in equity markets before the weekend. Fed funds futures currently suggest a ~39% probability of a rate cut in September, offering potential for additional market adjustments.
We are seeing a market mood that feels very familiar to the trade war jitters we navigated back in 2019. Now, the anxiety is being driven by renewed geopolitical friction and stubbornly high inflation data, not just tariff threats. This is creating a tough environment for equities, as major indices in both Europe and the US are starting August on the back foot.
Market fear is on the rise, with the VIX index recently climbing from its summer lows near 12 to just over 18 this week. This jump in implied volatility means options are getting more expensive, making protective puts a costly but perhaps necessary strategy for traders holding long stock positions. The sharp increase reflects growing uncertainty heading into the autumn.
All eyes are now on today’s US jobs report for July. Economists are forecasting a solid print around 190,000 new jobs, which normally would be positive news. However, like in the past, a strong number today could be seen as a negative for stocks as it gives the Federal Reserve more reason to delay any potential interest rate cuts.
Futures Market Outlook
This situation is reflected in the futures market, where the odds of a Fed rate cut by December have dropped to just under 50% from over 70% a few weeks ago. This shift suggests that traders might consider selling call options on interest rate futures to capitalize on the view that rates will stay higher for longer. The latest Core PCE inflation reading for June, which came in at a sticky 2.9%, is the primary reason for this hawkish repricing.
