US Treasury Secretary Bessent commented on ongoing trade negotiations, acknowledging that China presents challenges in discussions. A potential agreement is developing, with a deadline set for 12 August to finalise talks with China. Bessent is optimistic about reaching an agreement.
Regarding India, Bessent mentioned that the outcome is uncertain and depends largely on India’s actions. The US trade team is experiencing frustration in current engagements. Progress has been made in reducing non-tariff trade barriers with South Korea, which may facilitate stronger trade relations.
Status of Trade Negotiations
These remarks provide an update on the status of trade negotiations as the week progresses. An extension of the trade truce with China may lead to a meeting between Trump and China’s President Xi in late October.
We are looking at the August 12 deadline as a major event for the market. Given the positive but unconfirmed signals on a China deal, traders might consider strategies that benefit from a spike in volatility. We saw similar headline-driven swings during the trade disputes of the late 2010s, making options on broad market ETFs a relevant tool.
The uncertainty has pushed the CBOE Volatility Index, or VIX, toward 19, which is up from the calmer levels around 14 we saw back in May 2025. This makes hedging existing stock positions with put options more attractive, acting as insurance against a negative surprise. A sudden deal could also crush this volatility, offering opportunities for those willing to bet on a calm outcome.
Strategies and Market Reactions
For those wanting direct exposure, options on China-focused ETFs are in play, especially as China’s latest manufacturing PMI reading of 49.8 shows its sector is still struggling and needs a deal. The recent goodwill gestures on agricultural imports suggest a deal is the preferred path for both sides. This could favor strategies that bet on a relief rally in Chinese equities after August 12.
We should not ignore the frustrated tone regarding India, which creates a potential drag on emerging markets. The Indian rupee has already slipped 2% against the dollar this month on these fears, touching a year-to-date low. This suggests a pair trade could be considered: a bullish position on US markets against a bearish one on Indian equities.
Even if a deal is reached by August 12, the mention of a potential meeting in late October suggests this will be a temporary truce rather than a final resolution. Therefore, traders may want to look at options with expirations beyond August, perhaps into October or November. This long-term uncertainty can keep volatility higher than average for months to come.
