European equities are seeing positive momentum after a quiet day previously. Eurostoxx futures have risen by 0.4% in early European trading.
German DAX futures have increased by 0.6%, while UK FTSE futures have gained 0.3%. Wall Street faced a slowdown due to unsatisfactory US ISM services PMI data.
Us Futures Recovery
Despite this, US futures have recovered and are up by 0.3% today. This has contributed to an optimistic atmosphere as European markets begin the trading day.
We are seeing a positive tone in the markets, with European and US futures ticking up this morning. This follows yesterday’s disappointing US ISM services data, which came in below expectations at 49.2, technically indicating a contraction. The market’s ability to brush this aside suggests an underlying bullish appetite for now.
For those looking to capitalize on this momentum, short-dated call options on the Eurostoxx 50 or DAX are a direct play. The market has been trading in a tight range since early July, and this burst of optimism could fuel a short-term breakout. We saw a similar pattern of shrugging off weak data lead to a brief rally back in the first quarter of 2025.
However, we must view the weak US services data as a significant warning sign for the coming weeks. A slowing US economy has historically led to downturns in global equities, making this a potential bull trap. Traders should consider buying protective put options on major indices or establishing bear put spreads to hedge their portfolios against a potential reversal.
Rising Volatility
The conflicting signals between market sentiment and economic data point towards rising volatility. The VSTOXX, which measures Eurostoxx 50 volatility, is currently trading near yearly lows of around 15. This makes buying VSTOXX futures or call options a relatively cheap strategy to profit from any sharp market swings in the coming weeks.
We must also keep the European Central Bank in mind, as the latest July inflation report showed inflation persisting at 2.8%. While this is a significant drop from the highs we saw in 2024, it remains above the bank’s target. This stubborn inflation will likely prevent any rate cuts and could cap significant market upside through the autumn.
