China’s Foreign Ministry spokesperson Lin Jian has called on the United States to engage with China on equal terms, with respect and mutual benefit. Lin stressed that China will take necessary steps to defend its rights and interests if the US continues its current actions. This statement follows US President Donald Trump’s recent threat to impose 100% tariffs on Chinese goods starting November 1. This announcement has raised concerns about the future of US-China trade relations.

Market Reaction Stabilizes

Market reactions have stabilized, easing fears of a trade conflict between the two largest economies. The US Dollar has rebounded from a previous decline, and Dow Jones futures are showing intraday gains of over 1%. As the November 1 tariff deadline approaches, today’s calm market response suggests traders view this as political posturing, not a firm policy decision. The CBOE Volatility Index (VIX), which measures market fear, has dropped by 8% to around 17.5, coming down from a spike above 20 on Friday. This indicates that options traders are not seeking protection against a major market drop, betting that the threats will ease off. We’ve seen this pattern before during the trade disputes from 2018 to 2020, where strong rhetoric led to short-term market swings before deals or delays were announced. Currently, the market seems to expect a similar outcome, interpreting the threat as a negotiation tactic ahead of potential discussions. Therefore, selling out-of-the-money puts on major indices like the S&P 500 may be a good strategy to earn premiums based on perceived low risk.

Sector Performance Insights

Key sectors to watch include semiconductors and automotive manufacturers, which have closely linked supply chains with China. The PHLX Semiconductor Index dropped 3% last Friday but has recovered more than half of that loss in today’s trading, indicating resilience. For traders anticipating a de-escalation, buying call options on top tech companies that saw sell-offs could provide leveraged opportunities. The currency market reflects similar sentiment, as the offshore yuan (CNH) has strengthened against the dollar today, moving from 7.34 to 7.30. In a true trade crisis, we would expect the yuan to weaken significantly as capital exits China. This strengthening suggests currency traders believe the 100% tariffs are unlikely to be enforced. In the weeks ahead, focus should be on volatility and event-driven trading related to the November 1 deadline. Look for chances in options spreads that profit if the market stays stable or moves up gently due to diplomatic talks. For instance, a call spread on the Dow Jones Industrial Average could capture gains from a relief rally while controlling risk if negotiations do not go as planned. Create your live VT Markets account and start trading now.

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