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Xi Jinping’s Business-Friendly Speech Pacified Markets


Apr. 11 2018, Updated 8:23 a.m. ET

Stock market volatility calmer for now

The trade war turmoil that rocked markets last week seemed to retreat on Tuesday after President Xi Jinping made a market-calming speech. In his speech, he talked about lowering trade tariffs on the auto industry and tightening regulations surrounding intellectual property. In response, White House adviser Peter Navarro said that the doors were open for trade talks. These developments calmed markets on Tuesday, but developments in Syria continued to pose a threat to market stability.

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US market performance

The US indexes have struggled since the beginning of February and began this quarter with negative returns. The S&P 500 Index (SPY) rebounded by 2.0% in the first two sessions of this week after declining by 1.4% in the first week of April. A similar performance was recorded by the Deutsche Bank’s Dogs of the Dow ETN (DOD) and the PowerShares QQQ Trust Series (QQQ). Uncertainty surrounding US trade policy, the political situation in the US, recent attacks in Syria, and the crackdown on the tech sector (XLK) have resulted in downward pressure on US and global indexes.

VIX Index speculators start betting on volatility

The CBOE Volatility Index (or VIX), which is a measure of investor expectations for future volatility and tracked by ETFs such as the iPath S&P 500 VIX short-term futures (VXX), has continued to rise since February. The Volatility Index has surged 74% since the beginning of the year.

As per the latest commitment of trader’s report from the Commodity Futures Trading Commission (or CFTC), large speculators including hedge funds, have increased their long volatility positions from 74,740 contracts to 79,102 contracts. Investors remain skeptical about whether trade talks could lead to solutions in the short term, forcing them to stay long on volatility. In the rest of this series, we’ll analyze how hedge funds positioned for the eventful week.


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