US Treasury Secretary Bessent expressed confidence that the US Supreme Court will support Trump’s tariffs in an interview with Reuters. He recognized other legal reasons for tariffs but deemed them less effective. Bessent highlighted improvements in US-European relations, especially regarding India’s purchases of Russian oil, and characterized a recent gathering of non-Western leaders in Shanghai as ‘performative.’ He also accused India and China of backing Russia in the Ukraine conflict. Bessent predicted a strong chance that Miran will join the Federal Reserve before the September meeting. He mentioned Lisa Cook, noting she hasn’t denied allegations of mortgage fraud. Regarding tariffs, Bessent referred to a recent ruling from a US Federal Appeals Court that found most of Trump’s tariffs illegal, which is expected to be challenged. With the Supreme Court yet to make a decision on tariffs, there’s a clear indication for a long volatility strategy. The uncertainty from the appeals court ruling and Bessent’s optimism creates a ripe environment for price fluctuations. The CBOE Volatility Index, or VIX, has risen to 18.5, and we anticipate it may reach the mid-20s as the court’s decision approaches. The administration’s labeling of India and China as “bad actors” points to ongoing geopolitical risks that may affect emerging markets. We observed a similar situation in 2019 when tariff increases caused the iShares MSCI Emerging Markets ETF (`EEM`) to drop by 10% over two months. Purchasing protective put options on `EEM` or specific ETFs focused on China appears to be a wise hedge against any escalating tensions. Uncertainty at the Federal Reserve adds another aspect for traders to monitor ahead of the September meeting. Miran’s potential appointment might disrupt the board’s consensus, making interest rate decisions harder to predict. The CME FedWatch tool now indicates that futures markets are considering a broader range of possible outcomes for the next meeting compared to a month ago, signaling that traders should prepare for surprises. For those interested in certain sectors, the outcome of the tariffs will directly influence the industrial and technology supply chains. Options on steel and aluminum ETFs, such as `SLX` and `XME`, are likely to see increased volume and implied volatility. Reflecting on the period from 2018 to 2022, we note that companies dependent on Chinese components lagged behind the broader S&P 500 by up to 15% during times of heightened trade tensions.

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