European stocks faced continued pressure in early August trading, with US trade tensions affecting sentiment. The DAX and CAC 40 each fell around 2%, erasing July’s gains. S&P 500 futures declined by 1%, while tariffs on countries, updated by the US administration, weighed on markets. Apple’s and Amazon’s earnings reports highlighted tariff challenges affecting their performance.
Various market segments reacted differently amid tensions. The JPY led currencies, and CHF lagged as USD/CHF rose 0.4% to 0.8160 after the US imposed a 39% tariff on Switzerland. EUR/USD remained stable at 1.1410, and GBP/USD dropped by 0.3% to 1.3160. The New Zealand dollar fell 0.4% to 0.5863 following new 15% tariffs from the US.
Commodities and Bond Market Movements
In the commodities and bond markets, US 10-year yields rose 3.6 basis points to 4.396%, and gold gained 0.2% to $3,297.61. WTI crude fell 0.9% to $68.61, and Bitcoin dropped 1.1% to $115,260, with Ethereum reaching a one-week low. Markets await the US jobs report, which could further impact financial dynamics.
With stocks getting hammered and trade headlines driving the market, we are clearly in a risk-off environment. This kind of uncertainty is rocket fuel for volatility, something we saw during the 2018-2019 trade disputes when the VIX index frequently spiked above 20. Buying VIX call options could be a straightforward hedge against further equity declines in the coming weeks.
The warnings from Apple and Amazon about tariffs are a clear signal to be cautious on tech and the broader S&P 500. We remember the sharp equity pullbacks in 2018 when similar trade rhetoric intensified, with the S&P 500 dropping nearly 7% in May 2019 alone. Consequently, buying put options on indices like the SPY or QQQ seems prudent to protect against a repeat performance.
Safe Havens and Speculative Positions
In times of global stress, capital typically flows into the US dollar, and we’re seeing that again. Given that speculative positioning has already favored the dollar for much of the past year, long positions in the greenback, particularly against tariff-hit currencies like the NZD, appear sound. The Japanese yen is also acting as a primary safe haven, making long JPY positions attractive.
The upcoming US jobs report is the immediate wildcard, capable of shifting the narrative in an instant. With recent reports, like the one from June 2024 which handily beat expectations with 272,000 jobs added, a strong number today could increase pressure on the Fed. This might temporarily boost the dollar but would likely worsen the outlook for stocks already fearing tighter financial conditions.
Gold is struggling to act as a reliable safe haven right now, and the reason is rising US Treasury yields. The 10-year yield climbing towards 4.40% increases the opportunity cost of holding non-yielding bullion, a dynamic we have seen suppress gold rallies repeatedly since 2023. We must watch the 100-day moving average, as a decisive break below it could trigger a much deeper sell-off.
