Wall Street investors are actively hedging against sharp price swings — all because of the upcoming meeting between Donald Trump and Xi Jinping, scheduled for the end of October.
According to futures market data, traders are willing to pay more for protection specifically on October 31 — the very day Trump plans to meet with the Chinese leader.
Expectations of sharp moves in S&P 500 futures expiring on that date have already approached the 20 level — higher than contracts before or after the meeting. The volatility index Cboe VIX shows a similar picture for the same period.
On Friday, Trump confirmed that the meeting will take place in South Korea — just two weeks away. Earlier, he had cast doubt, saying the talks might not happen.
In addition, the president slightly softened his rhetoric regarding trade sanctions against China, which partially calmed the market. However, traders remain cautious — memories are still fresh of the October crash, when on the 10th stocks plummeted amid suddenly resurfaced trade war fears.
Analysts Warn of Escalation Risk
According to Dennis DeBusschere, chief strategist at 22V Research, the situation will likely remain under control — if the meeting does take place. But if the summit falls through, the chances of a new round of trade war will increase dramatically.
A similar view is held at JPMorgan. According to Bloomberg, Andrew Tyler, head of global market analysis, believes that market nervousness will persist at least until November 1 — when both leaders are expected to appear at the summit.
Last week in a letter to clients, Tyler warned that if the sides do not reach an agreement, markets could drop significantly.
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A vivid example of panic sentiment is the KraneShares CSI China Internet ETF, which manages $9.4 billion in Chinese tech assets. One options market indicator, the so-called «put-call skew» for one month, is now at its highest since early April.
This signals that traders are clearly nervous about what might happen in the coming weeks. Bank analysts cite two main reasons for increased volatility in Chinese stocks: “tariff hysteria” and the Chinese Communist Party meeting, which will be held this week.
The VIX Index Shows Growing Tension
Nervousness is felt across the market. The Cboe VIX volatility index remains above 20 — a level usually associated with rising stress. And VVIX, which tracks the volatility of the VIX itself, reached its highest since April on Thursday.
Geopolitical and credit risks are pushing the VIX index up. Source: Bloomberg
Michael O’Rourke, chief strategist at JonesTrading, expects the coming days to be turbulent for the stock market.
The Trump-Xi meeting will take place just a couple of days after the Fed meeting on October 29. Added to this are fresh concerns about problems in regional banks and a possible government shutdown. All this makes “crash insurance” increasingly relevant.
Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, considers the rise in VIX quite expected: markets have been surprisingly calm for too long.
According to her, this volatility even helps those investors who have long been looking for a reason to hedge. Now they are more actively buying put options on bank stocks and increasing their positions in gold calls.
