The Cboe Volatility Index, or so-called VIX, along with related VIX ETFs jumped Monday as the fear gauge reflected traders’ increasing anxiety over the potential fallout of an escalating trade war between the U.S. and China.
On Monday, the iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) increased 15.6%, ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) jumped 14.9% and the leveraged ProShares Ultra VIX Short-Term Futures (NYSEArca: UVXY), which provides the 2x or 200% daily performance of the S&P 500 VIX Short-Term Futures Index, advanced 22.1%. Meanwhile, the CBOE Volatility Index surged 28.5% to 17.7.
Potential traders should be aware that VIX exchange traded products track the futures market and not the spot price of the VIX.
After President Donald Trump raised the stakes last week on tariffs against Chinese products, President Xi Jinping said China will strike back, the Wall Street Journal reports.
“In the West you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” the Chinese president said, according to the people. “In our culture we punch back.”
How Beijing Could Respond to U.S.
Beijing could respond to Washington D.C.’s actions by holding up merger and acquisition deals involving U.S. companies, delaying licenses, ramping up inspections or steering its 1 billion-odd consumers to shun American products. The U.S. exported less than $200 billion in goods to China last year, so Chinese officials said they would have to take “qualitative” measures to retaliate, such as forcing increased inspections at U.S. companies and delaying regulatory approvals.
“Apple’s $40 billion market in China for iPhones, the largest in the world, could quickly collapse,” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, said in a note. “Similarly, General Motors sells more cars in China than in the U.S., sales that could easily be disrupted by the Chinese government.”
Related: 8 ETFs to Hedge Fallout if Trade Wars Escalate
The White House has plans to roll out $34 billion in tariffs on Chinese goods by July 6. China will respond with levies on U.S. soybean, energy and other products of the same value on the same day.
Trump recently announced plans to bar Chinese companies from investing in U.S. technology companies and to block U.S. tech sales to China in response to allegations of pilfering and pressure tactics that China has taken to acquire U.S. technology. The targeted investment restrictions will impeded Xi’s new initiative that paved a road map for Chinese businesses to dominate the information technology and biotechnology fields.
For more information on the CBOE Volatility Index, visit our VIX category.