The US-China trade talks are happening in London and will continue on Tuesday at 10 am local time. US Commerce Secretary Lutnick called the discussions fruitful, and President Trump said he received good updates from his team in London. However, no specific details about the talks have been shared. Bloomberg reported that the talks are now in their second day, highlighting the difficulty of reaching a full agreement between the two countries. The ongoing discussions show that both sides are not happy with the current standstill and are not ready to walk away yet. Lutnick’s optimistic view suggests that while there may not be a breakthrough, there has been enough progress to justify more talks. The fact that these negotiations are being held away from the usual venues in London indicates a desire for quieter diplomacy, away from the public eye. When negotiations last multiple days, it can mean either real progress or disagreements that take longer to resolve. In either case, this extension brings both uncertainty and potential opportunities. The lack of clear details leaves markets guessing, yet the extra day indicates that both countries believe there are still important issues to discuss. However, we’ve seen similar situations before, where promising meetings lead to weeks without news or sudden policy changes. Traders should stay cautious; positive talk does not always result in changes to tariffs, restrictions, or capital flows. Recently, investments in US equity options related to materials and industrials have increased, coinciding with news from London. Some investors seem to be betting on a better trade outlook. However, we advise caution. Without clear commitments like the removal of tariffs or a clear plan, this excitement could fade quickly. We’ve learned that optimism alone isn’t a reliable basis for pricing in these sectors. It’s also important to remember that these talks are taking place alongside key upcoming data releases in the US that could influence interest rate expectations. This mix of factors may create confusion in the market. It’s easy to attribute daily market movements solely to tidbits from the negotiations, but we should avoid that. Lutnick’s comments might set the stage for better trade relations in the upcoming quarters. Yet, the lack of specifics indicates a hidden risk, especially for positions expecting a quick easing of pressure. There’s been no commitment to roll back enforcement measures or timelines for lowering tariffs, meaning that only partial adjustments to the prices of trade-sensitive assets are justified. In terms of market activity, we are observing rising premiums in longer-dated volatility. This suggests that the market is giving some chance to a significant resolution, but likely over a more extended period. This aligns with past trends: we may feel hopeful now but should be ready to hedge later. We will be watching closely for any change in tone from the Chinese delegation, especially if they start talking to their domestic media. Such statements often hint at a public shift in the negotiations, whether it is positive or negative. Until then, we will remain careful, managing our expectations and using lower-risk strategies instead of taking directional bets.

here to set up a live account on VT Markets now