The Shangai Composite Index Closes 0.63% Lower

South Korea's benchmark Kospi rose 1.1% to close at 2509.27 amid easing fears over U.S. tariffs. Foreign and institutional investors were net buyers. LG Energy Solution and Samsung SDI gained 3.6% and 3.4%, respectively, after the government prepared a new aid plan for the EV battery industry. Memory-chip maker SK Hynix added 4.0%. Mobile internet giant Kakao climbed 5.6% after agreeing to develop AI Products with OpenAI. Meanwhile, LG CNS, an IT service affiliate of LG Group, fell 9.9% on its stock exchange debut. USD/KRW settled 1.3% lower at 1,444.30 in Seoul onshore trading. South Korea's 10-year government bond yield was down 2.3 bps at 2.821%. (kwanwoo.jun@wsj.com)

By Steven M. Sears

Maximum power creates maximum volatility.

That seems to be the key market takeaway of President Donald Trump's initial implementation of his Make America Great Again agenda on the international stage.

His decision to levy 25% tariffs on Mexico and Canada plunged markets into a deep decline on Monday. The market staged an intraday recovery after Mexico's and Canada's leaders agreed to Trump's demand to secure the border. Tariffs were suspended for 30 days, though it is unclear if, in the interim, other countries beside China will also be slapped with tariffs.

The options market isn't waiting to find out. A MAGA volatility premium exists beneath the options market's surface.

A recent Goldman Sachs analysis of stocks that comprise the S&P 500 index revealed that realized and implied volatility — the essence of options pricing — are near the highest levels of the past year. One-month realized volatility for the average S&P 500 stock is 33%, and implied volatility is 31%, representing the 94th and 84th percentiles, respectively, over the past year.

The volatility's steepness is surprising. Trump is a pro-market president, the U.S. economy is strong, and corporate earnings are robust. All of that usually equates to lower equity volatility.

High volatility suggests that the markets, which are accustomed to deferential treatment from everyone, even world leaders, are struggling to price Trump. No meaningful historical framework exists to evaluate an American president with maximum power and a maximum disdain for historical norms.

Investors face an interesting predicament. They can do nothing until a definitive Trump pricing pattern emerges, or they can trade the first MAGA volatility wave.

The simplest trade is to buy blue-chip stocks when Trump's actions push stocks lower. The trade expresses the belief that buying quality stocks when prices are falling is good because the future rewards patient investors.

Aggressive investors who are comfortable with options can supercharge this approach and get the options market to pay them to buy stocks. When stocks decline because Trump has said or done something that bullies stocks, investors can sell cash-secured put options with strike prices just below the price of their favorite stocks. Other investors are buying puts to hedge stocks, so selling puts monetizes widespread fear that stocks may decline.

If the stock price exceeds the strike price at expiration, put sellers can keep the options premium. The amount often exceeds the stock's dividend. If the stock is below the strike at expiration, they must buy the stock or adjust the put to avoid assignment.

The risks seem reasonable, but experience with cash-secured put sales — one of the most popular options strategies for many years — may be irrelevant, given the uncertainty surrounding Trump.

Indeed, the market's reaction to Mexico and Canada probably isn't an accurate indication of how it will process Trump's actualization of his MAGA agenda. Those nations are bit players on the world stage, unlike China, which is unlikely to quickly acquiesce, if at all, to Trump's demands.

Xi Jinping, China's leader, may have anticipated all this. In October, when observing the 75th anniversary of the founding of the People's Republic, Xi told the nation to prepare for tougher times. He seems, as does Trump, to be willing to endure short-term market pain for long-term political gain.

Investors should prepare for options volatility to keep increasing, and for stocks to decline longer and harder before recovering. This is why simple trading strategies — like the one outlined above — are best amid MAGA volatility. The world is in motion, and there is much more to be learned.

Email: editors@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

Gold is mounting a notable bullish rally, fueled by market uncertainty, says Ahmad Assiri, research strategist at Pepperstone. Trade tensions following the U.S.'s imposition of a 10% tariff on Chinese imports, and delayed but looming tariffs on Canadian and Mexican products, have fueled a shift toward safe haven assets, he writes in a note. Although the USD index initially strengthened earlier in the week, posing a headwind for gold, its retracement helped revive buying interest in the precious metal. From a technical perspective, gold is testing resistance that could trigger some profit-taking but the broader trend remains supported by hedging activities amid an uncertainty, Assiri adds. He sees scope for new record peaks if the risk landscape persists. Gold has hit a series of record highs in recent days and was last around $2,857/oz. (fabiana.negrinochoa@wsj.com)

New Zealand's benchmark S&P/NZX 50 index closed 0.5% lower at 12,845 on Wednesday, amid weak domestic labor market data and concerns over the impact of global tariffs.

New Zealand’s jobless rate rose to a four-year high of 5.1% in Q4 from 4.8% in Q3, highlighting continued economic strain.

This reinforced expectations that the Reserve Bank of New Zealand would deliver an outsized 50bps rate cut later this month.

On the global front, China announced retaliatory tariffs, just minutes after US President Donald Trump’s 10% levy on Chinese goods took effect on Tuesday.

Meanwhile, the 25% tariffs on imports from Canada and Mexico were also set to go into effect on the same day before Trump agreed to a 30-day pause following successful negotiations.

Among large-cap stocks, Fisher & Paykel shed 3.7%, Auckland Intl Airport lost 1.1%, and Spark NZ fell 0.9%.

MARKET WRAPS

Watch For:

EU PPI; Services PMI data from EU, U.K., France, Germany, Italy; France Industrial production index; trading updates from Credit Agricole, GSK, Banco Santander, Novo Nordisk, TotalEnergies, Pandora, Assa Abloy, Equinor, DCC

Opening Call:

European and U.S. stock futures were tracking lower on cautious sentiment; Asian equities trimmed their gains after mainland Chinese shares resumed trading after the Lunar New Year holiday; The dollar fell; Treasury yields were mixed; while oil fell and gold futures gained.

Equities:

Stock futures were lower early Wednesday as tariff jitters linger and corporate earnings roll on.

U.S. stocks rebounded on Tuesday despite the escalating new trade war between the U.S. and China. A U.S. official said that Trump and Xi could speak on Wednesday.

Trump has called the China tariffs "an opening salvo" and indicated that the U.S. will levy substantial tariffs against China if the countries can't come to an agreement.

Earlier Wednesday, the U.S. Postal Service said it would stop accepting parcels from China and Hong Kong, cutting off a service that is popular with online vendors in China.

Goldman Sachs analysts said that China's retaliatory tariffs appear much less than proportional compared with the U.S.'s 10% across-the-board additional tariff on $525 billion worth of Chinese goods. In the coming days, the U.S.'s reactions to China's retaliation will be among the key events to watch.

Forex:

The euro has limited scope to recover even as hopes rise that the EU can avert threatened U.S. trade tariffs after President Trump postponed a levy on Canadian and Mexican imports, ING's Francesco Pesole said.

Trump's decision to delay tariffs on his U.S. neighbors could reflect domestic backlash over potential economic pain for U.S. consumers but the same isn't necessarily true for the EU, he said.

Trump can afford to keep EU tariffs in place for a prolonged period, making the bloc feel some pain before striking a deal. "With all this in mind, we are somewhat skeptical that the euro is bound for a major rally."

Bonds:

Supply of covered bonds by European banks is expected to decline in 2025, partly due to weak economic growth, ING's Marine Leleux said.

ING expects the supply of euro-denominated covered bonds to drop by 7 billion euros, equivalent to $7.24 billion, this year versus 2024. A high number of redemptions due this year could mean bond refinancing dominates covered-bond supply this year, she said.

Energy:

Oil prices were lower after the U.S. implemented an additional 10% tariff on Chinese imports and Beijing retaliated with measures of its own, raising concerns over the prospects for demand.

Near-term prices for global crude oil could remain capped due to supply risks and potential trade challenges, said Hassan Fawaz, GivTrade's chairman and founder.

Trade tensions between the U.S. and China may also affect demand levels, he said, adding that caution could dominate, leading to pressure on oil prices.

Oil traders have also been concerned about plans by OPEC+, to boost production after the first quarter.

Metals:

Gold edged higher early Wednesday. Demand for haven assets like gold, which is testing record highs, was being boosted by uncertainty in a challenging global economic environment dominated by trade and tariff tensions between the U.S. and multiple nations, Pepperstone said.

U.S. job openings at the end of 2024 unexpectedly resumed their downward trend, which raises questions about the labor market's strength and its ability to withstand global economic risks, raising uncertainty for investors, it added.

--

Base metals were broadly higher in Asia. China on Tuesday announced export restrictions on metals for various industries in retaliation to U.S. tariffs, but the list didn't include base metals, which supports the positive sentiment, Sucden Financial said.

Given the moderate tariff increases from China and the U.S., markets are weighing the potential impact on both economies, which may be minimal provided that the situation doesn't escalate further, it added.

--

Iron ore declined, dragged by concerns over the tariffs China announced Tuesday. China imposed a 15% tariff on imports of U.S. coking coal, ANZ Research analysts said.

Chinese iron-ore markets will probably come under pressure amid worries about weaker export-driven demand, the analysts added.

TODAY'S TOP HEADLINES

Fed's Daly Is in No Rush to Cut Interest Rates

The Federal Reserve's Mary Daly is in no rush to lower interest rates until inflation is closing in on the central bank's 2% target.

A solid economic backdrop gives the Fed the luxury of time to hold policy where it is until disinflation progress resumes, the San Francisco Fed President said on Tuesday. "[The economy] came into 2025 in a very good place," Daly said at an event hosted by the Commonwealth Club World Affairs of California.

Fed Vice Chair Jefferson Urges Patience on Rate Cuts

A solid economy and still-too-high inflation argue for holding interest rates steady until more progress is made in slowing price growth, Federal Reserve Vice Chair Philip Jefferson said on Tuesday evening, echoing recent remarks from several of his colleagues on the Federal Open Market Committee.

"As long as the economy and labor market remain strong, I see it as appropriate for the Committee to be cautious in making further adjustments," Jefferson said in prepared remarks for an address at Lafayette College in Easton, Pa., on Tuesday evening. "Over the medium term, I continue to see a gradual reduction in the level of monetary policy restraint placed on the economy as we move toward a more neutral stance as the most likely outcome."

Novo Nordisk Earnings Must Show GLP-1 Market Still Set for Big Growth

When Danish drugmaker Novo Nordisk reports its quarterly financial results on Wednesday, investors will be looking for reassurance the GLP-1 market is still on track for the enormous growth Wall Street expects.

Novo shares have taken a beating in recent months, with the stock's American depositary receipts falling nearly 40% in the last six months of 2024. Shares first slid on growing worries that sales of its weight loss drug Wegovy and its Type 2 diabetes drug Ozempic wouldn't live up to the hype, and then on very disappointing trial data.

Trump Says U.S. Will Take Over Gaza

WASHINGTON-President Trump called for the U.S. to take long-term control of Gaza and for nearly two million Palestinian residents to permanently leave for neighboring countries, a break with decades of U.S. policy that left the idea of a Palestinian state in tatters.

"The U.S. will take over the Gaza Strip," Trump said during a press conference alongside Israeli Prime Minister Benjamin Netanyahu at the White House. "I do see a long-term ownership position, and I see it bringing great stability to that part of the Middle East, and maybe the entire Middle East."

Ukraine Open to Trump's Idea to Exchange Aid for Rare Earths-But There's a Catch

President Trump has indicated he is open to supplying Ukraine with more weapons in exchange for access to the country's mineral resources. Ukraine is on board, but putting the plan into practice might not be so easy: Many of the minerals of greatest interest to the U.S. are in areas under Russian occupation or threatened by Moscow's advance.

As a result, access to valuable Ukrainian natural resources will depend, at least in part, on the battle for eastern Ukraine, where Russian forces are currently advancing slowly but steadily.

Nissan to Reject Honda's Merger Terms, Putting Deal in Peril

Nissan's board is planning to reject Honda's terms for a combination of the two automakers, putting in danger a merger plan announced less than two months ago, people familiar with the matter said Wednesday.

Nissan's board was scheduled to meet later Wednesday, and the people cautioned that no final decision to kill the deal has been made.

Write to singaporeeditors@dowjones.com

Expected Major Events for Wednesday

07:00/DEN: 4Q Consumer credit

07:45/FRA: Dec Industrial production index

08:00/CZE: Dec Retail trade

08:15/SPN: Jan Spain Services PMI

08:30/EU: Jan EuroCOIN indicator of euro area economic activity

08:45/ITA: Jan Italy Services PMI

08:50/FRA: Jan France Services PMI

08:55/GER: Jan Germany Services PMI

09:00/EU: Jan Eurozone Services PMI

09:00/UK: Jan UK monthly car registrations figures

09:00/ITA: Dec Retail Sales

09:30/UK: Jan S&P Global UK Services PMI

09:30/UK: Jan UK Official Reserves

09:30/UK: Jan Narrow money (Notes & Coin) and reserve balances

10:00/EU: Dec PPI

10:00/CYP: Jan Registered Unemployed

10:00/LUX: Jan CPI

11:00/FRA: Dec OECD CPI

11:00/POR: 4Q Employment statistics

16:59/POL: Polish interest rate decision

All times in GMT. Powered by Onclusive and Dow Jones.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

Hong Kong's private sector recorded continued but marginal improvement in its business conditions in January, despite business expectations staying downbeat, according to a Wednesday press release by S&P.

The S&P Global Hong Kong SAR Purchasing Manager's Index slipped to 51.0 in January from 51.1 in December 2024, staying in expansionary territory but at the lowest since September 2024.

New orders grew but at the softest pace since the 18-month peak last seen in October due to weak consumer spending and a slump in business, according to S&P.

New business from mainland China fell the greatest since April 2022 while exports slipped for the third month, the debt watcher said.

Employment in Hong Kong's private sector increased the second time in the past nine months due to higher recruitment in the services and wholesale/retail sectors, S&P said.

Purchasing activity expansion was the slowest during the month, while supplier performance fell for the sixth straight month due to shipping delays and insufficient spare capacity, and input price inflation was the highest in three months.

Business expectations also stayed downbeat, but confidence continues to rise from the 13-month low seen in November, S&P said.