Bessent expresses optimism about talks with China, the US economy, and a possible Budapest summit
by VT Markets
/
Aug 20, 2025
US Treasury Chief Bessent announced that the US and China have had positive talks. He noted that the current relationship is working well.
Bessent is hopeful that the US economy will improve in the fourth quarter, even though there are some economic distribution issues.
Possible Trilateral Meeting
Bessent mentioned Budapest as a potential venue for a trilateral meeting, saying it “could be.”
The upbeat mood about US-China relations suggests less geopolitical tension, which usually leads to stable markets. Recent data shows that US-China trade volumes stabilized in Q2 2025, rising 2% from the previous year after a long decline. This scenario indicates that selling volatility might be a good idea, possibly through short straddles on China-linked ETFs like KWEB.
With a stronger US economy anticipated in Q4, we should focus on cyclical sectors. Q2 2025 GDP growth was revised to a modest 1.7%, but a rise in growth could significantly impact the market. We believe buying call options expiring in November or December on indices like the Russell 2000 (IWM) is a smart way to prepare for this expected growth.
Economic Distribution Issues
Recognizing distribution issues confirms the K-shaped recovery we’ve seen in 2025. In July, retail sales data indicated that discount retailers enjoyed a 5% year-over-year sales increase, while luxury goods sales remained flat. This gap supports strategies like pairs trading—buying call options on consumer staples (XLP) while selling puts on consumer discretionary (XLY).
Lastly, uncertainty about a possible trilateral meeting poses a specific risk for European markets. The CBOE EuroCurrency Volatility Index (EVZ) remains above its 2024 lows, indicating this uncertainty. Traders might consider purchasing short-term options on European stocks as a budget-friendly hedge against unexpected outcomes from the meeting.
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by VT Markets
Aug 20, 2025
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