US Treasury Secretary Scott Bessent provided updates on trade talks. He described the EU’s retaliatory actions as a negotiation strategy and noted that discussions with the EU are improving, although a deal is not finalized yet. The expected agreement with the EU is likely to have tariffs in the 10-20% range, similar to the deal made with Japan, which is viewed as a move towards stability. Bessent is optimistic about relations with China, believing that this approach allows the US to have broader discussions. He prefers “supply de-risking” over completely separating from China. The recent 15% agreement with Japan regarding autos is a separate deal. As negotiations move forward, deals like the one with Japan could be seen positively by investors, as they lower risks and offer more predictability.

Market Impact on Volatility

Bessent’s comments clearly signal a strategy to sell volatility. His words are meant to ease market fears about a trade war, which usually lowers option prices since worries about large price swings decrease. The CBOE Volatility Index (VIX) has typically dropped when geopolitical risks diminish, so traders might want to consider strategies like short straddles on major indices. The expected EU deal, even with a 10-20% tariff, removes the worst-case scenario. European automakers, which exported over $40 billion in vehicles to the US last year, would view this positively. We recommend buying call options on the German DAX index or on specific automakers like Volkswagen and BMW in the coming weeks for potential gains from this expected easing.

Long Term Trends with China

Bessent’s remarks about China point to a lasting trend. According to early 2023 data from the U.S. Census Bureau, Mexico has officially surpassed China as the top exporter to the United States for the first time in two decades. This shows that de-risking is not just talk. It supports longer-term bullish positions in companies that benefit from near-shoring and North American supply chains. We can look back at the Japanese agreement as a reference for market reactions. When that deal was announced in late 2019, it eased fears of broader auto tariffs and gave equities a slight boost as certainty returned. This suggests a similar, possibly moderate, rally could happen now, making short-term call options on industrial ETFs a sensible strategy to prepare for an announcement. Create your live VT Markets account and start trading now.

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