Insights 
VT 
US Treasury Secretary Scott Bessent discussed the US’s response to China’s export controls, describing them as provocative. The US is in contact with allies, including India, expecting their support against these controls.
Bessent mentioned that China might be open to dialogue, but the US is prepared to act more aggressively if needed. He emphasised the US’s desire not to decouple, despite perceiving signals of decoupling from China.
Maintaining Global Peace
The US aims to maintain its relationship with China while advocating for global peace, criticising China’s role in financing conflict. There is confidence in de-escalating the situation, with 100% tariffs not deemed necessary.
Following Bessent’s comments, the US Dollar Index increased by 0.37%, resting at 99.22. The US continues to assess its economic strategies in relation to China’s actions and the global market.
The Treasury’s comments introduce significant uncertainty, creating an ideal environment for volatility trading. We see the market’s fear gauge, the VIX, as being too low, recently trading around 15.4, which doesn’t fully reflect the risk of a breakdown in US-China talks. Buying VIX call options or options straddles on major indices could be a direct way to profit from the price swings that are likely to come.
We are reminded of the trade disputes of 2018-2019, when similar tariff threats led to multiple S&P 500 corrections exceeding 10%. With the index near all-time highs, purchasing out-of-the-money put options on the SPY or QQQ ETFs offers a cost-effective hedge against a similar downturn. The market seems complacent, underpricing the possibility of a policy mistake from either side.
Pressure on EV and Semiconductor Industries
The US Dollar’s initial strength to over 99 on the DXY shows its safe-haven appeal is intact. We believe this trend will continue if tensions escalate, especially against China-proxy currencies like the Australian Dollar and the offshore yuan (CNH). The USD/CNH currency pair is a key battleground, and a sustained move above its September high of 7.42 would signal significant stress.
China’s explicit mention of controlling rare earths puts direct pressure on the EV and semiconductor industries. We’ve seen this before, when the VanEck Rare Earth ETF (REMX) experienced wild swings during past trade conflicts. Options on highly exposed companies within these sectors will be extremely sensitive to news flow in the coming weeks.
While we are positioned for conflict, the possibility of de-escalation means these defensive trades carry risk. A sudden announcement of a successful diplomatic meeting could trigger a sharp relief rally, crushing short positions and volatility bets. We must therefore remain nimble and watch for any change in official tone from either Washington or Beijing.
