The trade truce between the US and China offers some relief, but markets expect a slowdown in the latter half of the year. Standard Chartered economists predict a growth rate of 4.9% for 2025, with ongoing deflationary pressures. Even with reduced tensions, there’s no rush to increase stimulus before the end of the year. A possible 10 basis points cut in policy rates is anticipated for Q4, but it might get pushed back to 2026.

Focus on Technology and Currency

Looking ahead, China aims to develop its own technology and promote the international use of the renminbi (RMB). The government projects an average growth rate of about 4.5% over the next five years. The recent trade truce between the US and China has lessened immediate uncertainties, likely reducing implied volatility soon. We’ve already noticed a decrease in implied volatility for Hang Seng (HK50) index options, with a December expiry dropping from recent highs. This shift suggests that strategies like selling strangles could work well if we expect a more stable market rather than sharp movements. For currency traders, the offshore yuan (CNH) is experiencing conflicting influences from the positive news of the truce and the negative outlook of a potential rate cut. After the truce announcement, USD/CNH retreated from highs around 7.40 but is finding support near 7.32 as the market adjusts to the expected 10 basis point cut. Options betting on the pair remaining within a certain range, such as iron condors, might be a good way to navigate this uncertainty. The truce is a boost for Chinese stocks, but the overall economic slowdown may limit any big increases. The latest manufacturing PMI for October is just above expansion at 50.1, reminding us of a temporary rally in early 2019 that faded as growth worries returned. Using call spreads on the FTSE China A50 index, instead of outright long calls, can help profit from a modest uptick while keeping costs down.

Deflationary Concerns

Concerns about deflation persist. China’s consumer price index fell by 0.1% year-over-year in October, marking the third straight month of weak numbers. This trend suggests that the People’s Bank of China might initiate another rate cut, making interest rate swaps betting on lower short-term rates relevant. However, the possibility of a policy pause until 2026 means these positions should be considered as short-term tactical trades. Create your live VT Markets account and start trading now.

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