Market Calm Masks Trade Shock Risk: EBC Financial Group Warns Ahead of July 9 Deadline

With volatility near four-month lows and risk-on flows accelerating, traders may be underpricing disruptive global trade policy shifts

DC, UNITED STATES, July 4, 2025 /EINPresswire.com/ -- As the July 9 expiration of President Trump’s 90-day tariff pause approaches, global markets are enjoying a wave of calm. Risk appetite has returned, volatility has fallen, and positioning has skewed toward optimism. But according to analysts at EBC Financial Group (EBC), this surface-level calm may be obscuring deep structural risk.

“The VIX is being crushed, but that doesn’t mean the market is calm—it just means hedges are being unwound as traders chase upside,” said David Barrett, CEO of EBC Financial Group (UK) Ltd. “What concerns us is how underprepared the market seems for a policy event that could structurally reshape trade flows. If something breaks, we could see a reflexive spike in risk-off moves.”

The CBOE Volatility Index (VIX) closed at 16.64 on July 2—its lowest in four months and down sharply from its April peak of 52. While this reflects strong inflows into risk assets, EBC analysts caution that volatility instruments like the VIX are derivative tools influenced more by positioning flows than sentiment itself. The unwinding of hedges may be suppressing volatility just as global trade risks intensify.

Risk Appetite Returns — But for How Long?

Despite a quieter day on July 2, the VIX briefly spiked to 17.37 in pre-market trading, before retreating to 16.64—a sign that investor caution remains elevated. Market sensitivity is evident: Japan’s NIKKEI 225 slipped 0.2% the same day in response to tariff headlines.

“The market seems confident that Trump will pull back, as he has before,” added Barrett. “But confidence can create complacency. And complacency in the face of structural policy risk is dangerous.”

Meanwhile, global fund managers continue to cite geopolitical tensions—particularly around trade policy—as a leading concern for Q3. Investors are increasingly rotating out of supply chain-exposed assets, especially in semiconductors, automotive, and consumer electronics.

What Traders Should Watch Next

Should tariffs be reintroduced, EBC expects ripple effects across asset classes. Asia-Pacific equities, particularly in countries like Japan and Vietnam, remain highly sensitive to trade rhetoric. Emerging market currencies, including the Mexican peso and Vietnamese dong, may come under pressure, while demand for safe-haven assets such as the U.S. dollar could rise.

EBC analysts recommend closely monitoring manufacturing PMIs from tariff-sensitive economies, as well as flow data in ETFs tied to U.S. industrials, logistics, and alternative supply chain hubs like India and Brazil. Commentary from the Federal Reserve will also be crucial, as global trade tensions could influence the central bank’s trajectory for rate normalisation. Even if the July 9 deadline passes without formal action, the repricing of risk may have already created asymmetric opportunities for well-positioned traders.

Tariff Rhetoric Widens: Japan Now in the Crosshairs

While the original focus was on major trade partners such as China, Mexico, and Vietnam, recent remarks by Trump suggest that Japan may also be targeted in a potential second term. According to The Japan Times, he has floated the idea of imposing reciprocal tariffs as high as 35% on Japanese imports—surpassing even proposed China levels—in a renewed push to secure trade concessions.

This reflects a shift away from specific trade grievances toward a broader surplus-based doctrine—one that threatens to strain long-standing alliances and global trade norms.

“Tariffs are no longer just about trade deficits—they’ve become instruments of political signalling,” added Barrett. “This shift toward politicised trade policy has direct implications for volatility, especially in sectors like tech, autos, and manufacturing.”

Manufacturing Hubs Face Renewed Exposure

Vietnam and Mexico, which benefited from tariff-induced supply chain shifts during the 2018–2019 trade war, are again in focus.

Vietnam had been facing the threat of a 46% U.S. tariff—a move that alarmed regional markets. However, recent negotiations have resulted in a tentative agreement: a 20% tariff will apply to direct Vietnamese exports, and a 40% tariff will target goods transhipped through Vietnam to the U.S. Despite easing from earlier proposals, the economic impact remains material. Vietnam’s Q2 GDP growth was projected at 7.6%, but a 10% decline in U.S.-bound exports could shave 0.8 percentage points off growth, and IMF projections warn of a slowdown to 5.4% if tariff uncertainty persists.

Mexico, too, remains exposed. While no new tariffs have been announced yet, analysts cite CEPR research indicating that during the 2018–2019 trade war, Mexico’s exports benefitted from trade diversion, with a 4.2% gain per 25 percentage point tariff applied to comparable Chinese products.

China Remains Central to Global Trade Risk

China’s trade landscape offers a mixed picture. In March, exports surged 12.4% year-on-year, reaching US $314 billion with a US$103 billion surplus—largely driven by front-loaded shipments ahead of anticipated tariff actions.

However, May 2025 saw a notable deceleration: export growth slowed to 4.8% YoY, with exports totalling US$316.1 billion. Exports to the U.S. specifically dropped nearly 35%, reflecting mounting tariff impact. Despite this, China’s trade surplus still widened slightly to US$103.2 billion.

A Doctrinal Shift with Global Consequences

Trump’s proposed reciprocal tariff system represents a break from WTO precedent. If enacted, it could impose broad-based duties on surplus nations—including U.S. allies like Germany, South Korea, and Japan—and rewire global supply chains.

For multinationals, the unpredictability of election-driven trade policy complicates sourcing decisions. For emerging economies reliant on U.S. demand, it raises the spectre of collateral damage.

This information reflects the observations of EBC Financial Group and all its global entities. It is not financial or investment advice. Trading Contracts for Difference (CFDs) entail a substantial risk of swift financial loss due to leverage, rendering it inappropriate for all investors; thus, a thorough evaluation of your investment objectives, expertise, and risk appetite is imperative prior to engagement, as EBC Financial Group and its entities are not liable for any damages arising from reliance on this information.

From macro scenario planning to real-time geopolitical insights, EBC Financial Group supports traders in navigating market complexity. For more insights, visit www.ebc.com.

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About EBC Financial Group  

Founded in London, EBC Financial Group (EBC) is a global brand known for its expertise in financial brokerage and asset management. Through its regulated entities operating across major financial jurisdictions—including the UK, Australia, the Cayman Islands, Mauritius, and others—EBC enables retail, professional, and institutional investors to access global markets and trading opportunities, including currencies, commodities, CFDs and more.

Trusted by investors in over 100 countries and honoured with global awards including multiple year recognition from World Finance, EBC is widely regarded as one of the world’s best brokers with titles including Best Trading Platform and Most Trusted Broker. With its strong regulatory standing and commitment to transparency, EBC has also been consistently ranked among the top brokers—trusted for its ability to deliver secure, innovative, and client-first trading solutions across competitive international markets.

EBC’s subsidiaries are licensed and regulated within their respective jurisdictions. EBC Financial Group (UK) Limited is regulated by the UK's Financial Conduct Authority (FCA); EBC Financial Group (Cayman) Limited is regulated by the Cayman Islands Monetary Authority (CIMA); EBC Financial Group (Australia) Pty Ltd, and EBC Asset Management Pty Ltd are regulated by Australia's Securities and Investments Commission (ASIC); EBC Financial (MU) Ltd is authorised and regulated by the Financial Services Commission Mauritius (FSC).

At the core of EBC are a team of industry veterans with over 40 years of experience in major financial institutions. Having navigated key economic cycles from the Plaza Accord and 2015 Swiss franc crisis to the market upheavals of the COVID-19 pandemic. We foster a culture where integrity, respect, and client asset security are paramount, ensuring that every investor relationship is handled with the utmost seriousness it deserves.

EBC is a proud official foreign exchange partner of FC Barcelona and continues to drive impactful partnerships to empower communities – namely through the UN Foundation’s United to Beat Malaria initiative, Oxford University’s Department of Economics, and a diverse range of partners to champion initiatives in global health, economics, education, and sustainability.

https://www.ebc.com/  

Michelle Siow
EBC Financial Group
+60 16-337 6040
michelle.siow@ebc.com
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