EU Commissioner Sefcovic is focusing on trade relations with both the US and China. The upcoming EU-China Summit is a key opportunity to talk about important trade and investment issues.

Balancing Trade Partnerships

The EU wants to create a more balanced trade partnership, similar to the one with the US. With the threat of 20% US tariffs on EU goods, diversifying trade is essential. The EU is also eager to learn if China will open its markets, which is vital for achieving a balanced trade relationship. Mr. Sefcovic believes the summit will be a crucial moment for the European market. The combined pressure of US trade talks and discussions with China creates a complicated situation. Traders should prepare for more price fluctuations across various asset classes. The conversation with Beijing is critical; the market might not fully grasp the risks. In 2023, the EU’s trade deficit with China reached €291 billion, based on Eurostat data. Any news indicating a shift in this relationship will significantly affect European industrial and consumer stocks.

Volatility In Trade Relations

Amid geopolitical tensions, we view the current levels of implied volatility as too relaxed. The VSTOXX, Europe’s main volatility index, has recently hovered around 14-15, a historically low range. This situation offers a low-cost chance to buy protective put options on indices like the German DAX or Euro Stoxx 50 to safeguard against possible disappointments from trade talks. The US-China trade war from 2018-2019 serves as a reminder of how quickly volatility can spike and harm stocks. Europe, now caught between the two powers, could experience a similar volatility surge. Thus, we suggest avoiding short positions on volatility until there is greater clarity. Certain sectors are especially vulnerable and require a focused derivatives strategy. European car manufacturers and luxury brands depend heavily on exports to the US and China, making them sensitive to possible new tariffs or market access issues. We anticipate increased options trading on these companies as traders prepare for significant outcomes from the negotiations. Create your live VT Markets account and start trading now.

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