The United States anticipates progress from the ongoing trade discussions with China. The US is specifically aiming for a handshake agreement regarding rare earths during a meeting in London.

It is expected that China will ease export controls, allowing rare earths to be released in substantial quantities. The meeting is scheduled to be brief but promises to produce tangible results.

Trade Discussion Precedents

Previous trade talks have set precedents, such as the soybean trade scenario in 2019. This current situation bears similarities, with potential gestures of goodwill from China anticipated.

This development, with hints of a diplomatic opening on rare earths, suggests a short-term realignment in resource flows. The United States appears prepared to soften its posture slightly, banking on a reciprocal move from China tied to industrial supply chains. The location of the meeting—London, rather than on either party’s home soil—signals a neutral ground for what seems to be more than just a symbolic encounter.

Rare earths, widely used in manufacturing, defence technologies and green energy systems, have been a pressure point in previous trade disagreements. If Beijing decides to ease current restrictions, this would have an immediate effect on hedging approaches, particularly for medium-term calendar spreads. The volume increase in exports would likely drive down pricing volatility in key input commodities, leading to more stable margins for manufacturers that depend on refined materials.

It’s worth noting the parallels to the 2019 soybean deal. That earlier event, while focused on agricultural goods, generated notable trends: reductions in implied volatilities, a near-term return of directional pair trades, and a sharp shift in calendar strip positioning. These same outcomes could re-emerge here. Particularly in options strategies tied to Asian industrial equities or US transport sectors, where movements in material prices are felt quickly and strongly.

Strategic Implications

Lighthizer’s previous moves have usually followed a pattern—opening with a narrow ask, followed by expansion into broader tariff leverage. Given his record, we often find that a verbal signal is not just lip service, but a stage-setting mechanism. It would be a mistake to dismiss this London meeting as a ceremonial affair. Rather, it’s more useful to interpret it as a test balloon for targeted economic shifts.

From our side, this warrants tighter scrutiny on short-end gamma structures. Markets currently underprice the likelihood of sudden access to raw materials being restored. If even a partial lift on quotas comes to pass, this introduces a downside skew to those holding long commodity volatility. With expiry dates approaching around next month’s FOMC meeting, timing trades around these geopolitical negotiations could offer better risk asymmetry than calendar-neutral positions.

Whereas Mnuchin typically acts as a convener, encouraging monetary alignment, his earlier patterns imply that financial backchannels have already prepared the market for regulatory loosenings. It could benefit us to explore front-month iron ore contracts, using strips to express short-term dislocation before trade normalisations bake into longer-dated positions.

If Beijing follows through, we expect a knock-on effect: a rush to rebalance industrial ETF exposures. Moves like these are never quiet. They come in waves—first ripple, then surge.

So, in the days ahead, we maintain a flexible stance. We shift from static hedges to dynamic overlays, especially in inputs with freight exposure.

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