US Treasury Secretary Bessent is confident that the Supreme Court will maintain Trump’s tariffs. He mentioned that there are other laws that could justify tariffs, but these are not as effective. Progress is being made with Europe regarding India’s purchases of Russian oil. He referred to a meeting in Shanghai hosted by China as merely ‘performative’. Bessent accused India and China of aiding Russia’s actions in Ukraine by supplying resources. He previously suggested that Miran is likely to join the Federal Reserve Board before the September meeting. Additionally, he noted that Lisa Cook has not denied allegations of mortgage fraud.

Supreme Court Tariff Case

The situation around tariffs involves a US Federal Appeals court ruling that found many of Trump’s tariffs illegal. This has created a ‘tariffs quagmire’, which remains a significant issue as the week starts, with an appeal process underway. The upcoming Supreme Court case adds a lot of uncertainty, which could cause increased market volatility in the next few weeks. For reference, the VIX index had surged 15% in a single day in late 2024 when the first appeals court ruling was announced. It is wise to hedge equity exposure with index options until there is legal clarity. This trade conflict is likely to keep the US dollar strong, making it a safe-haven currency and putting more pressure on the Chinese yuan. The yuan has already fallen past 7.40 against the dollar this summer, and the continuing political discussions will only worsen its situation. We are considering derivatives that could profit from ongoing volatility in the USD/CNY exchange rate.

Impact On Oil And Interest Rates

We need to monitor the increasing pressure on India regarding its purchases of Russian oil closely. India has been importing more than 2.1 million barrels per day this year, so any disruptions from US or European actions could lead to a sharp rise in crude oil prices. We are looking at long positions in WTI and Brent crude oil futures to prepare for this risk. With Miran likely joining the Fed before the September meeting, the outlook for interest rates is changing. The market now anticipates a higher chance of a rate hike or a more aggressive policy statement. Pricing in the SOFR futures market has already moved to suggest a 45% chance of a hike this month, up from just 20% last week. Lastly, public criticism of a sitting Fed governor adds a troubling political dimension to monetary policy. This undermines the institution’s credibility and could lead to unpredictable market reactions, especially in the banking sector. We think this justifies buying protective put options on financial sector ETFs to hedge against this instability. Create your live VT Markets account and start trading now.

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