US Treasury Secretary Bessent spoke about ongoing trade talks, noting that China is a challenging partner. There is hope for a potential agreement with a deadline of August 12 for finalising talks with China. Bessent remains positive about reaching an agreement. Regarding India, Bessent said the outcome is unclear and largely depends on India’s actions. The US trade team feels frustrated in their current discussions. However, there has been progress in reducing non-tariff trade barriers with South Korea, which could lead to better trade relations.

Status of Trade Negotiations

These comments offer an update on trade negotiations as the week goes on. An extension of the trade truce with China may allow a meeting between Trump and China’s President Xi in late October. The August 12 deadline is an important date for the market. Positive signals about a deal with China, although not confirmed, might lead traders to consider strategies that benefit from increased market volatility. We saw similar reactions during the trade disputes of the late 2010s, making options on broad market ETFs a useful tool. Due to the uncertainty, the CBOE Volatility Index, or VIX, has risen to 19, up from around 14 in May 2025. This makes using put options to hedge stock positions more appealing, providing protection against unexpected negative news. If a deal is made suddenly, it could lower volatility, creating chances for those betting on a stable outcome.

Strategies and Market Reactions

For those seeking direct investment, options on China-focused ETFs are attractive, especially since China’s latest manufacturing PMI of 49.8 indicates struggles in its sector that need addressing through a deal. Recent positive steps regarding agricultural imports suggest both sides prefer to reach an agreement. This could lead to a relief rally in Chinese stocks after August 12. The frustration about India shouldn’t be overlooked as it may drag down emerging markets. The Indian rupee has already dropped 2% against the dollar this month, reaching a year-to-date low due to these concerns. A pair trade could be a good option: taking a bullish stance on US markets while being bearish on Indian stocks. Even if a deal is reached by August 12, the mention of a possible meeting in late October implies this will only be a temporary agreement, not a final solution. Thus, traders may want to consider options that expire after August, possibly in October or November. This ongoing uncertainty may keep volatility higher than usual for months to come. Create your live VT Markets account and start trading now.

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