US President Donald Trump announced that a trade deal with China is close. He also plans to raise tariffs on imports from India soon. He will soon announce tariffs on semiconductors and chips. Initial tariffs on pharmaceuticals will be low but could rise to 150-250% within a year. Trump criticized Federal Reserve Chairman Powell as being very political and hinted at new candidates for Fed positions. However, US Treasury Secretary Scott Bessent wants to stay in his job. After Trump’s comments, the US Dollar Index rose by 0.3% to 99.00. Tariffs are fees on imported goods that protect domestic industries by making local products cheaper. Tariffs are different from regular taxes since they are paid at entry points. Some economists back tariffs to protect local businesses, while others warn they can raise prices and lead to trade wars. Trump’s plan aims to strengthen the US economy by imposing tariffs on key trade partners like Mexico, China, and Canada. He hopes to use the revenue from these tariffs to lower personal income taxes. Expect increased market fluctuations. The CBOE Volatility Index (VIX), which shows expected market turbulence, has been around 14.5, its lowest since 2025, indicating that options are relatively inexpensive. This could be a good time to buy protection or speculate on larger price swings in the upcoming weeks. The US Dollar Index is strong and reached 99.00 following the news. With ongoing tariff discussions and pressure on the Fed, we expect this strength to remain against currencies like the Euro and Yen. Recent European data showing slowing industrial production adds to this outlook. We are considering long dollar positions using futures or call options on currency ETFs. New semiconductor tariffs are likely to pressure that sector. The PHLX Semiconductor Index (SOX) has risen nearly 20% in 2025, making it susceptible to a drop due to news that could disturb supply chains. We are looking at buying put options on major chipmakers and related ETFs to prepare for a potential decline. The proposed pharmaceutical tariffs are particularly aggressive, which could hurt company profits significantly. Looking back at trade disputes from the late 2010s, sectors targeted by tariffs tended to underperform for months. Buying put options on pharmaceutical ETFs is a smart way to protect against expected price drops. A possible US-China trade deal contrasts with the new tariff threats against India. We see a trading opportunity here, preferring Chinese stocks over Indian stocks in the short term. This could be achieved by buying call options on China-focused ETFs while also buying puts on India-focused funds. Any talk of replacing the Fed Chairman adds uncertainty around interest rates. The market is already reacting, with Fed Funds futures showing a greater chance of a rate cut before the year ends, up from just 15% a month ago. This indicates we should keep an eye out for chances in interest rate derivatives that may benefit from a more politically influenced Fed.

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