Recent trade developments have greatly affected the market as the US nears a critical deadline. Tariffs on Malaysia, Thailand, Indonesia, and Cambodia are set at 19%. Taiwan has negotiated a temporary relief with a 20% tariff. Vietnam also faces a 20% tariff in the latest US trade measures.
In Europe, Switzerland faces 39% tariffs, affecting the Swiss franc, with USD/CHF rising 0.2% to 0.8137 in the European session. Canada has experienced an increase in tariffs from 25% to 35%, while the US has extended Mexico’s trade deadline by 90 days.
China Negotiations Ongoing
China remains a focal point, with ongoing negotiations about a possible extension. Although Beijing has agreed to a delay, the US administration suggests uncertainty remains. President Trump has not yet agreed to an extension, with the current deadline set for 12 August.
For a comprehensive list of recent tariff adjustments in line with the 1 August deadline, refer to the White House announcement.
These trade announcements are injecting serious uncertainty into the markets. We expect a significant jump in implied volatility across asset classes, similar to what we saw during the 2018-2019 trade disputes. Traders should consider buying protection or using strategies that benefit from sharp price swings, as the VIX could easily push past 20 in the coming days.
Market Volatility Expected
The 39% tariff on Switzerland is a major blow, likely sending the Swiss franc much lower against the dollar. Given that the U.S. was Switzerland’s second-largest goods export market in 2023 at over $67 billion, we could see USD/CHF target the 0.8500 level. Options traders will be looking at puts on the Swiss Market Index (SMI) as bellwethers in the pharmaceutical and luxury watch sectors face severe pressure.
For Canada, the tariff hike to 35% spells trouble for the Canadian dollar, given that around 75% of its total exports go to the U.S. We anticipate weakness in the loonie and will watch for bearish positions on the S&P/TSX Composite Index. Mexico’s 90-day extension provides temporary relief for the peso, but this uncertainty will linger, likely capping any significant rally.
The new tariffs on Malaysia, Thailand, and other Southeast Asian nations will weigh on their currencies and equity markets. All eyes, however, are now on the August 12 deadline for China, creating a binary event risk. The uncertainty should keep implied volatility elevated for options on the Chinese yuan and related market ETFs like FXI.
This kind of global trade friction typically fuels a flight to safety. We expect gold to gain upward momentum, potentially testing highs not seen since the inflation scares of 2022. Similarly, demand for U.S. Treasuries should increase, pushing yields lower as investors seek refuge from the volatility.
