The Hong Kong Hang Seng index rose by 1.4%, thanks to improvements in US-China trade relations. There’s a lot of excitement about the upcoming negotiations in London, where important trade officials from both countries will meet starting Monday. These talks are expected to last throughout the week, and US leaders are optimistic about the discussions. This positive sentiment is boosting US stocks and has helped Chinese markets reach levels not seen since March. Market trends suggest that the highs from March are within reach. The Hang Seng index’s recent gain reflects growing confidence linked to the renewed trade dialogue. With talks beginning in London and expectations already influencing market strategies, futures are starting to absorb the optimism related to positive negotiation outcomes. Markets aren’t just reacting emotionally; they’re also reflecting solid positioning among investors. The movement in equities and indices related to Chinese markets points to a hopeful outlook, driven by easing tensions and the re-opening of stalled channels. As trade officials start their discussions, early signs indicate investors are factoring in a moderation of earlier tough talk. We’ve noticed activity in call options increasing during the Asia session, based on the idea that trade volatility will lessen. While this optimism has fueled the current surge, it’s essential to monitor implied volatility closely this week, especially around mid-week expiration periods. Traders should pay attention to changes in the forward curve shape, particularly in equity-linked derivatives connected to mainland China or large US firms with significant presence in Asia. This situation highlights how demand shifts across different sectors, especially in technology and financials. We’ve already seen increased trading volumes in options related to these sectors, particularly where open interest has been low recently. Such movements reflect a reassessment of pricing risks over the short to intermediate term. Wang’s earlier neutral-to-positive outlook is supported by the early gains, but this optimism will depend on whether the negotiators provide concrete points during discussions. If we consider Powell’s comments from last week—whether intended or not—they might help solidify expectations, limiting the usual market swings after meetings. Beyond Monday’s opening, we must closely monitor whether equities and derivatives continue to align under the pressure of actual policy signals or news changes. Depending on who leads the discussions and how points are communicated to the media, we may need to reevaluate our short gamma risk before expiry. The recent compression of skew on index exposure leaves little room for deviations from expected cooperation. However, we are not yet seeing aggressive unwinding of fear-driven positions. Trading volumes remain comfortably within the ranges observed just before the March highs. There’s still potential for mispricing, particularly among assets that haven’t moved in tandem with the benchmark. If diplomatic developments are unclear or take longer than expected, delta hedging flows could work against us until clarity emerges. As the meetings begin, we should stay flexible, observing how longer-term calendar spreads evolve to guide our outlook over the next two to three weeks. Currently, skew indicates more buying of upside protection than we’ve seen since Q1, suggesting that the optimism is tangible—just strong enough for a light long bias.

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