The US has paused reciprocal tariff actions for 90 days on non-retaliating countries while maintaining a 10% baseline tariff. China faces a 125% tariff, with trade uncertainty affecting market confidence.
Markets responded positively to the pause but remain susceptible to trade-related news, particularly between the US and China. Current US tariffs average around 25%, and further tariffs may be introduced, impacting global growth prospects.
Market Analysis
As overseas stocks rise, US equity futures have declined, and crude oil prices are falling due to growth concerns. The USD shows weakness against the JPY and CHF, with gold demand increasing. There are risks of the DXY dipping to the 99/100 range.
This article outlines a temporary suspension of new US tariffs for a ninety-day window, though this leniency only applies to countries that haven’t imposed retaliatory measures. Meanwhile, the existing flat tariff of 10% stays in force. China, however, is in a different situation entirely. It faces a steep 125% levy, and this disparity is fuelling unease in broader markets. The uncertainty around trade policy isn’t easing, which is now weighing on investor sentiment.
Market participants initially welcomed the pause, but the honeymoon is likely to be short-lived. The lingering threat of fresh tariffs or a flare-up in diplomacy puts a ceiling on risk appetite. So while global equities outside the US are experiencing a lift, it’s coupled with a pullback in US futures. That divergence speaks volumes. It suggests that optimism is cautious at best, with forward-looking positions more selective than confident.
Oil prices are drifting lower, and that’s not merely down to supply dynamics. Traders are reading the tealeaves—slower demand forecasts, possibly driven by trade-driven weakness in global industrial output. At the same time, we’re watching currency flows carefully. The dollar’s recent softness against traditional safe havens like the yen and franc hints at broader risk aversion building below the surface.
Market Sentiment and Volatility
With bullion seeing a surge in demand, it’s not just about inflation hedges anymore. It’s about the mounting weight of uncertainty. In that direction, our eyes are on the dollar index. If momentum continues in this direction, a test of the 99–100 band appears increasingly within reach. Such a move would likely recalibrate cross-asset correlations, prompting another round of positioning, particularly in currency and commodity derivatives.
From a positioning standpoint, near-dated options are seeing upticks in implied volatility. That’s typically what we’d expect when short-term catalysts—like the ongoing tariff freeze or upcoming data points—are hard to quantify. We may want to adjust exposure not just tactically but with a slightly longer time horizon in mind, especially as additional tariff details or fiscal adjustments may be proposed with minimal warning.
We also notice that pricing in longer-dated options seems to be lagging behind realised volatility. That dislocation doesn’t usually last. It presents opportunities to front-run repricing dynamics, especially in FX and rate-linked assets. Traders with delta-hedged positions or those running gamma should expect sharper swings on smaller headlines.
Judging from Put-Call ratios and open interest shifts, there’s no clear consensus forming yet, although skew is building in some commodities and Asian equities. That often suggests unease about asymmetric risks. The data shows participants may be bracing for negative outcomes rather than embracing the upside case just yet.
Risk remains tightly bound to policy direction. We’re not in an environment with strong macro conviction. This means tighter stop placements, sharper liquidity management, and rotation towards defensives in options strategies make more sense than high-beta exposure. The weight of the evidence supports a cautious trading profile, particularly through the remainder of this quarter.
