SOFR OPTIONS: Broken Call Ladder

Retail sales rose 7.8% Y/Y in the week ending Jul 18 (8.2% prior), bringing month-to-date sales to 8.0%, per the Johnson Redbook index. This would be the softest since April and the first deceleration since December-to-January, suggesting that June was the high watermark for sales growth - though July's would still represent a still-elevated pace.

• June's largely in-line retail report showed Y/Y Control Group growth of 6.4% for a 2nd consecutive month, maintaining the negative gap with Redbook which rose 8.9% (May) and 10.1% (Jun).
• Note that Redbook (which covers 80% of Census Bureau retail sales) as well as the official series are in nominal terms and reflect higher prices as well as volumes, though there are no official "real" series. That said, Redbook growth has continually run ahead of Y/Y inflation in the last year.
• The report's anecdotal section makes note of price-sensitive shoppers, as well as state sales tax holiday dynamics coming into play in the coming weeks: "As heat waves swept across the country, retailers reported brisk demand for their remaining inventories of hot-weather merchandise. With some school systems starting early, Back-to-School Sales Tax-Free Holidays in many states are approaching quickly this year. Families are increasingly turning to discount stores for value-oriented back-to-school savings amid rising costs. Consumers are making purchases on different trips to benefit from special promotions and keep their spending under control.  Alabama kicked off its sales tax holiday, which took place from Friday, July 17, through Sunday, July 19. Shoppers took advantage of this opportunity by purchasing computers, books, clothing, and a variety of school supplies. Most holidays are scheduled for the beginning of August."

• Alongside the renewed upside for energy prices on Tuesday, and the associated pressure on core global FI markets, USDJPY (+0.17%) continues to edge higher to trade within 5 pips of 162.84 cycle highs.
• The energy price shock remains a headwind for yen performance, with only the Swedish krona and Swiss franc weakening more than the yen since the US-Iran conflict commenced back in Febr. Furthermore, any USDJPY shorts tied to the most recent reporting on potential tweaks to domestic savings plans and GPIF allocations could well be squeezed as we start to trade at fresh 40-year highs once again.
• Former BOJ board member Makoto Sakurai recently told MNI that the BOJ will likely raise the policy interest rate to 1.25% from 1.0% in October, although a weaker yen approaching JPY165 could prompt policymakers to move as early as September. Sakurai forecasts a terminal rate of 2.0-2.5% by 2028.
• It’s the cautious approach to the tightening cycle and the relatively low terminal rate forecasts that fails to spark any countering yen optimism, and these lofty levels for USDJPY might spur renewed commentary from MoF officials.
• On the topside, 164.26 remains a notable target, the top of a bull channel drawn from the Feb 12 low.

• MNI: US REDBOOK: STORE SALES +7.8% WK ENDED JUL 18 VS YR AGO WK
• US REDBOOK: JUL STORE SALES +8.0% VS YR AGO MO