European markets are stabilising after a turbulent session last week. Key financial indices in Europe have rebounded over 1%, with S&P 500 futures rising by 0.6%. The US market is reacting to poor job data with optimism, anticipating potential rate cuts from the Federal Reserve. Major tech shares, particularly those in the “Magnificent 7”, are showing pre-market gains as the enthusiasm for buying the dip persists.
In currency movements, the US dollar steadies after last week’s decline, with EUR/USD slightly down by 0.1% to 1.1568. USD/JPY remains near flat at 147.45, while USD/CHF has increased by 0.4% to 0.8075. The franc is underperforming following the Swiss markets’ return from a long weekend. Commodity currencies show little change today.
Bond Yields Stabilisation And Commodity Prices
Bond yields have stabilised, with US 10-year yields edging up 1 basis point to 4.225% after reaching 4.257% earlier. This stabilisation influences sentiment, particularly affecting USD/JPY. Gold remains steady, aiming for a potential increase towards previous highs above $3,400, as interest mounts for a further rise before summer ends. Oil prices have declined, with WTI crude falling 1.8% to $66.10, while Bitcoin shows a marginal rise of 0.25, sitting at $114,431.
After Friday’s market chaos, we are seeing a clear shift in sentiment this week. The weak US jobs report, which showed a gain of only 85,000 jobs against a 190,000 forecast, is being interpreted as good news for equities. This has traders betting on Fed rate cuts, making call options on the S&P 500 and Nasdaq attractive as investors buy the dip.
This “bad news is good news” environment is something we’ve seen before, particularly during the market recovery in late 2020 and 2021. During that period, the Federal Reserve’s commitment to low rates fueled a major stock rally despite ongoing economic uncertainty. We may be entering a similar phase where expectations of monetary easing override immediate economic concerns.
Weakness In European Markets
The US dollar’s momentum has been stopped for now, following its sharpest single-day drop since December 2024 last Friday. While it has stabilized, the prospect of rate cuts makes holding long dollar positions risky. Traders could consider buying put options on the dollar index or selling out-of-the-money call options to position for potential further weakness.
Across the Atlantic, the data points to weakness in Europe. The Eurozone’s investor confidence has collapsed to -3.7, its worst reading since the energy crisis fears of late 2023. At the same time, the Swiss franc is lagging due to a fourth consecutive month of contraction in its manufacturing PMI, making short positions on the euro and the franc a logical hedge.
Gold is holding strong above $3,360, benefiting from the same logic lifting stocks. With the CME FedWatch tool now pricing in a 75% chance of a rate cut by the November 2025 meeting, up from 30% last week, the environment is very supportive for non-yielding assets. Buying call options targeting the recent highs above $3,400 seems like a compelling strategy for the coming weeks.
