Insights 
VT 
Risk assets are starting the week positively as the US and China find common ground on issues such as TikTok sales, soybean purchases, and tariffs. A meeting between US President Donald Trump and China’s President Xi Jinping might result in a formal agreement, delaying severe 125/145% mutual tariffs that were threatened earlier.
The scarcity of US data releases is due to the ongoing government shutdown. Markets are paying attention to China’s planned export controls on rare earths. If the delay extends for a year, it would positively influence global equity markets. As a result, Australian and New Zealand dollars are gaining, and the dollar might face a slightly negative backdrop if positive outcomes occur from the US-China discussions.
Federal Reserve Chair Shortlist
Scott Bessent has announced a shortlist for the next Federal Reserve Chair, which includes Rick Rieder. The US government shutdown contributes to scarce data releases, with a 49% probability that it extends beyond 16 November. It is key as the US military might not get paid if the shutdown continues past 15 November. DXY remains near 99, with potential shifts influenced by local politics and economic indicators like the German Ifo.
Risk assets are showing strength this week on hopes that upcoming US-China trade discussions will ease tensions. We remember the extreme market volatility surrounding the threatened 125-145% tariffs during the Trump administration. A formal agreement now to delay new tariffs or roll back existing ones could spark a significant rally in global equities.
This optimism could weigh on the US dollar as demand for emerging market assets increases. In fact, major emerging market ETFs have already seen over $10 billion in net inflows this quarter, a sign that traders are positioning for a weaker dollar. A positive outcome from the trade talks would likely accelerate this trend, benefiting risk-sensitive currencies.
Domestic Risks and Federal Reserve Meeting
The Dollar Index (DXY) is currently holding near the 106.50 level, but a breakthrough in trade talks could see it test support at 105. We saw similar dynamics in the late 2010s, when positive trade news could quickly knock the index down from levels around 99. Options traders could consider buying puts on the dollar as a hedge against a sudden de-escalation.
A key domestic risk we are watching is the looming government funding deadline on November 21st. The probability of a brief shutdown is currently seen at around 30% in political betting markets. Any failure by Congress to pass a funding resolution could create short-term volatility and a flight to safety, temporarily boosting the dollar.
Beyond geopolitics, we are focused on the Federal Reserve’s upcoming meeting next week. Futures markets, as reflected by the CME FedWatch Tool, are pricing in an 85% chance that the Fed will hold rates steady. This suggests the greater risk for derivatives traders comes from any surprisingly hawkish language in the Fed’s statement rather than an actual rate move.
