Donald Trump plans to reveal at least seven letters targeting countries with high tariff rates, with a deadline set for August 1. These details are expected to be shared today, and more countries might face tariffs later on. However, the market largely views this as an empty threat that is unlikely to happen by the deadline. Investors and analysts are doubtful about these tariffs being enforced in the current economic situation. Trump’s move to issue formal warnings about tariff changes seems more about gaining political attention than having immediate economic effects. The August 1 deadline is treated with skepticism in the market, as similar announcements in the past have often lacked follow-through. As a result, the markets have reacted. Equity volatility is low, and implied volatility in equity index options remains near recent lows. There has been no significant adjustment in calendar spreads or skew, indicating that option traders are not expecting immediate disruptions. This suggests that thoughts on economic retaliation or trade restrictions are minimal for now. Overall, the uncertainty in policy, especially from such targeted threats, does not cause immediate shifts in the derivatives market. It’s only when those threats are confirmed, or when similar signals continue, that we may see movement in rates, credit, or FX volatility. For those tracking rate-sensitive products, it appears that global trade flows will not prompt changes in monetary policy in the coming weeks. Swap spreads and Eurodollar options do not reflect any protective measures related to tighter liquidity or altered rate expectations. This shows that participants are waiting for a real policy change before reacting. In the meantime, cross-asset risk measures, especially in high-yield spreads and short-term rates, are neutral. This perspective is beneficial for short-term options, as traders are focusing more on daily data and energy trends rather than macro concerns. The front end of the curve indicates no domestic inflation risk from tariffs that hasn’t already been accounted for. Looking further out in time, there may be early adjustments in volatility strategies. Positioning for three- to six-month tenors could be wise if retaliatory duties are announced, not because they’re certain, but because this period might coincide with post-election adjustments when rhetoric can quickly turn into policy. Weekly skew in rates is almost flat and modest in FX, likely because no particular region is seen as a main target yet. This situation allows focus on carry trades and stable trades, requiring limited downside hedging. Buying volatility now would be costly and premature unless there’s a real expectation of sharp drops in trade flows. It’s important to watch daily positioning data, especially dealer gamma, to see if sentiment changes towards hedging any unexpected announcements. For now, it’s reasonable to consider this situation as mere noise. Structured product issuance is back to normal levels, and credit default swaps on regional exporters have not increased. Overall sentiment is stable, not defensive. As we analyze moves from large asset holders, keep an eye on fund flows and changes in open interest, particularly in global index futures and commodity-related currencies. These metrics will indicate whether short-term hedging is happening below the surface. Historically, unfulfilled letters and threats have quickly faded from market perception, overshadowed by payroll data, CPI, or central bank updates. Therefore, recent announcements should be viewed more as political drama than actual trade intentions. Watch for significant shifts in option volumes that might indicate real repositioning, but don’t expect them to happen suddenly. Unless there’s confirmation, the savvy investors are staying light and focused on data, not distractions.

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