US trade representatives Greer and Bessent recently met with Chinese officials. They discussed pausing tariffs on Chinese goods, considering a possible 90-day extension by Trump. No changes were made to export controls during these talks. If Trump chooses not to extend the pause, tariffs may go back to the levels from April 2 or be adjusted to a level he decides. The U.S. raised concerns about China buying 90% of Iranian oil, but they did not discuss issues like TikTok or the surplus in Chinese manufacturing.

Stock Market Reactions

Stock markets dropped: the Dow Industrial Average fell by 0.42%, the S&P by 0.21%, and the NASDAQ by 0.26%. In the U.S. Treasury market, yields neared their lowest points, with the 2-year at 3.887% (down by 3.3 basis points), the 5-year at 3.920% (down by 6.2 basis points), the 10-year at 4.344% (down by 7.6 basis points), and the 30-year at 4.881% (down by 8.3 basis points). The decision about tariffs is up to Trump, which will determine if they will stay paused or go back up. A future meeting with China could happen in 90 days. This uncertainty is making the market uneasy. With the August 12 tariff deadline coming, lack of a clear agreement raises risks. Traders are anxious as the final decision rests with the President. Such uncertainty increases market volatility, which is crucial for derivative traders. We’re monitoring the CBOE Volatility Index (VIX), which is around 15, a relatively calm level. This indicates that the market might not be fully prepared for the risk of tariffs returning next month.

Market Protection Strategy

To protect against potential losses, we suggest considering buying protection in the next two weeks. Purchasing put options on major indices like the S&P 500 (SPX) or the Nasdaq 100 (NDX) can provide insurance. These options would gain value if the market drops due to negative tariff news after the deadline. The fundamental issues, like the manufacturing surplus, continue to be significant challenges. Recent data from the U.S. Census Bureau shows a goods trade deficit with China over $72 billion in the first quarter of 2025. This ongoing imbalance supports the government’s tough position. Looking back to the 2018–2019 trade war, the S&P 500 experienced several corrections of more than 10%, with volatility spiking above 30. A similar return of tariffs could lead to a repeat of these trends. With treasury yields falling, the bond market is signaling a move toward safety, reinforcing the need for cautious positions in stocks. The decrease in yields suggests that large investors are bracing for a possible economic slowdown if trade tensions rise. This scenario also affects currency markets. A risk-off trend could strengthen the US dollar as a safe haven, leading to weaker currencies tied to global trade and China, such as the Australian dollar (AUD). Create your live VT Markets account and start trading now.

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