Bessent has announced that the United States has reached a framework agreement with China regarding TikTok. Further negotiations are expected in the coming weeks, with a meeting between Trump and Xi scheduled for Friday.
Framework Agreement With China
The USTR’s Greer mentioned that discussions on broader issues like tariffs have been postponed until the Friday meeting. As TikTok is not publicly listed, any market impact would likely come from a divestment involving a large US tech company.
Greer also noted that the US may consider additional actions on pausing tariffs, contingent on the positivity of upcoming talks.
This news suggests a clear de-escalation in US-China tensions, which should lower overall market volatility. We are seeing the VIX, which has been hovering around 18, already dip below its 50-day average in futures trading on this announcement. Selling VIX calls or buying puts on volatility ETFs for the coming weeks looks like a prudent move.
Potential Market Impact
We have to view this through the lens of the trade wars from the late 2010s, where any hint of a tariff reduction sent markets soaring. With the upcoming Trump-Xi call this Friday, positioning for a potential upside move in equity indices makes sense. Buying near-term call options on the S&P 500 or Nasdaq 100 is a direct way to play this potential risk-on sentiment.
The most direct impact will be on US tech companies with major exposure to China, particularly in the semiconductor space. The SOX index, which has underperformed by 4% over the last quarter due to these tensions, is a key area to watch. We are looking at call options on major semiconductor ETFs or individual names that derive over 25% of their revenue from China.
While the TikTok framework itself has limited direct market impact, the commentary about a potential tariff pause is the real story here. The offshore yuan (CNH) already strengthened past 7.15 against the dollar, a one-month high, reflecting this optimism. This suggests a potential tailwind for emerging markets and a slight weakening of the dollar, which could be played through currency futures or options.
