In October, the Consumer Price Index (CPI) in the Netherlands saw a decline, with the year-on-year figure dropping to 3.1%. This represents a decrease from the previous 3.3%.
The reduction in the CPI suggests a decrease in the rate of inflation over the past year. This shift is evident in the national economic indicators.
ECB’s Rate Hiking Cycle
This slight cooling in Dutch inflation, a key indicator for the wider Eurozone, reinforces the view that the European Central Bank’s rate hiking cycle is firmly in the past. We believe the market is now underpricing the potential for rate cuts in the second half of 2026. Therefore, positioning in derivatives that benefit from falling interest rates, such as buying Euribor futures contracts for late 2026 delivery, appears attractive.
We see this as a positive signal for European equities, which have been sensitive to interest rate policy since the aggressive tightening we saw back in 2023. Given that the VSTOXX volatility index has recently settled near 16, a relatively low level, buying call options on the Euro Stoxx 50 index offers a cost-effective way to capture potential upside. This strategy allows us to participate if markets rally on expectations of looser financial conditions.
Potential Divergence in Major Economies
This data also creates a potential divergence with other major economies, particularly the United States, where the latest inflation figures released just last week showed core CPI holding firm at 3.4%. This difference suggests the ECB may be in a position to cut rates before the Federal Reserve. Consequently, we should consider trades that anticipate a weaker Euro, such as buying EUR/USD put options, to capitalize on this policy divergence over the next few weeks.
