Expectations for a breakthrough in US-China trade relations are low, even after Trump hinted at a potential deal. The agreement mainly addresses non-tariff issues, like rare earth export controls, but does not solve the main trade tensions.

Trade Standoff Status

Current tariffs stay unchanged. While the restart of talks might suggest some potential for progress, the relationship between the two countries seems worse than a few months ago, dampening short-term hopes. The article points out that despite public claims of progress, very little has changed in the US-China trade standoff. Trump’s comments suggested movement on some export restrictions, such as rare earth materials. However, bigger issues like intellectual property rights, technology transfer, and tariffs are still unresolved. The resumption of dialogue might seem positive at first, but it doesn’t mean that tensions have noticeably eased. In fact, relations appear to be worse than before. From our perspective, both sides seem hesitant to make new concessions before major political events that could alter priorities again. Any signs of a reset may just be for show rather than a real policy change. Thus, we should view the current situation as one of ongoing uncertainty rather than escalating risk. For traders in derivatives, this slow pace, combined with ongoing unresolved disputes, underscores the need for careful management of exposure to sudden market changes, such as those caused by news or policy speculation. It’s easy to get swayed by headlines, but the decisions we make rely more on concrete adjustments. In such situations, forward volatility generally decreases as expectations remain unchanged by genuine policy shifts.

Market Opportunities and Risks

Nonetheless, trading short-term options could offer chances if you stay focused on the timing of official statements and economic reports from both countries. Positioning around these softer triggers requires frequent reviews of implied volatility estimates, especially for one- to two-week periods where both sides show low conviction. Avoid using leverage on longer-term themes until clearer patterns emerge. Thin bids and flows along the US-Asia corridor suggest reluctance to commit, particularly in high-delta contracts. If this trend continues, even with some hawkish or dovish hints, then implied market moves may not align with actual ones, especially in macro-linked foreign exchange or index credit. For now, liquidity providers will likely prefer tighter spreads on short-term contracts and will cautiously update correlation assumptions. For those managing larger portfolios, it’s better to favor calendar trades with protective overlays instead of taking bold stances based on presumed resolutions of trade barriers. The atmosphere is rife with potential misinterpretations, and we anticipate few policy changes without an unexpected shift from regulators or sudden supply chain disruptions. As Powell and Liu focus on domestic issues, external pressures often take a back seat. This contributes to the prevailing sideways market tone, keeping actual ranges narrower than what implied breakevens suggest. If you seek gamma exposure, it may be more beneficial to adjust your entry points rather than depend on macro triggers that consistently let you down. Create your live VT Markets account and start trading now.

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