Continued Trade Tensions

Find out our latest reports, listed below:

• How did options markets react to the crypto selloff?

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• Metaplanet Is Selling Vol, Who Is Next?

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• Bybit x Block Scholes August Volatility Review

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• Bybit x Block Scholes Quarterly Report: What will drive crypto in Q3 2025?

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Market Snapshot: Overnight Moves:

Daily Updates:

• The appetite for risk appeared shaky yesterday as markets were in the middle of a tug of war between risk-on news and continued trade tensions between the world’s two largest economies, the US and China. 
• Chair Powell indicated in a speech yesterday that weakness in the labour market keeps the door open for further rate cuts from the Fed. That inspired a brief bounce in US equities markets. 

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• The bounce was cut short, however, with the S&P 500 paring back most of its gains closer to the end of the trading day (closing at -0.16%) after President Trump announced the US is “considering terminating business with China having to do with Cooking Oil, and other elements of Trade” — a new development in the trade friction between the two sides. 
• Those comments followed an announcement from China yesterday that US units of Hanwha Ocean Co., one of South Korea’s biggest shipbuilders, would be sanctioned. 
• Trump also said the measures on cooking oil were a retaliatory move against China’s refusal to buy US soybeans, an “Economically Hostile Act” that is purposefully “causing difficulty for our Soybean Farmers”. 

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• BTC traded between $110K and $114K, while ETH traded in a range of $3,900 and $4,100.
• Implied volatility levels, particularly for short-dated contracts, jumped from 38% and 66% to 46% and 79% for BTC and ETH respectively, as spot prices reached the lower bound of their trading range. However, as prices bounced off those levels, market expectations for future volatility came down and now remain slightly above the levels they rose to — for BTC that means one week contracts trade with an ATM IV of 39% and 70% for ETH.
• Options traders have also refused to price out their demand for downside protection, as smiles for BTC and ETH remain firmly skewed towards put contracts. 

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• Speaking to the National Association for Business Economics conference in Philadelphia, Chair Powell said “As I mentioned there really isn’t a risk-free path now since it appears that inflation is certainly running above our target and appears to be continuing to increase quite gradually … but now the labour market has demonstrated pretty significant downside risks as payroll jobs have declined”. 
• While not outright signalling an October rate cut, Powell kept the door open: 

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“Based on the data that we do have, it is fair to say that the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago.” 

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“You’re at a place where further declines in job openings might very well show up in unemployment. You’ve had this amazing time where you came straight down, but I just think you’re going to reach a point where unemployment starts to go up and we may be hitting that now”

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“The downside risks to employment appear to have risen.” 

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• The Chair also signalled that the Fed may soon be able to end its balance sheet runoff, which began in 2022 — “Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions” and “We may approach that point in coming months”. 
• Boston Fed President Susan Collins also spoke yesterday and reiterated her view that “With inflation risks somewhat more contained, but greater downside risks to employment, it seems prudent to normalize policy a bit further this year to support the labor market”. 
• According to Collins, “Even with some additional easing, monetary policy would remain mildly restrictive, which is appropriate for ensuring that inflation resumes its decline once tariff effects filter through the economy”.

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This Week’s Calendar:

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Charts of the Day:

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