OPTIONS: CPI Spurs Sonia Upside Activity

Monday's Europe rates/bond options flow included:

• ERF5 97.375 puts paper paid 0.25 on 12.5K
• ERH5 97.75/97.875/98.00 call fly, bought for 1.5 in 10k
• SFIU5 96.15/96.50 call spread vs. 95.50/95.35 put spread, paper paid 8 for the call spread on 3K vs. 96.00, delta 22%.

Continued from previous bullet on Trump's Mar-a-Lago presser. Trump says on Elon Musk’s Department of Government Efficiency: “They’re finding things you wouldn’t even believe… We’re looking to save maybe USD$2 trillion, and it’ll have no impact on people… We will never cut social security or things like that… just waste, fraud, and abuse…”

• Trump refers to recent calls with Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau on stopping sources of immigration into the US: “They understand they’re very much on notice… they’re going to have to stop this from happening…”
• Trump says his policies, “will help us rapidly defeat inflation, create millions of new jobs, and put money in the pockets of the hardworking families of our country… we’re going to be paying off tremendous amount of debt…”
• Trump declines to reveal if he has spoken with Russian President Vladimir Putin since re-election, but says he had a “very good talk” with Israeli Prime Minister Benjamin Netanyahu on Saturday which he characterised as a “catch-up call”.
• Trump says: “As you know I gave a warning that if these hostages [held by Hamas in Gaza] aren’t home by [January 20] there’s going to be hell to pay…”
• Asked if he would consider pre-emptive strikes on Iran’s nuclear facilities, Trump says: “How could I answer a question like that? ...You don’t talk about that before something may or may not happen.”
• Trump says he will let reporters know if he believes Ukraine should cede territory to Russia after he holds meetings with Putin and Ukrainian President Volodymyr Zelenskyy. 

• “The federal fiscal update will likely reveal an overshoot of this year’s deficit target, and while that will garner headlines and political chatter, it’s not our focus. An extra $10 bn, for example, would only add about 0.3% to the deficit/GDP ratio, which will be cushioned by an upward revision to the level of GDP this year due to prior year revisions.”
• “Our eyes will instead be on any announcements of additional fiscal stimulus beyond the modest one-time lifts from previously announced $250 cheques and a short-lived partial GST holiday. If Ottawa abandons its fiscal handcuffs and tacks on timely (i.e. funds actually doled out soon, not over a decade), material (more than a couple of decimal places of GDP) and lasting net-stimulus (i.e. not shuffling money from one envelope to another) we and the market might have to recalibrate expectations for further BoC rate cuts.”
• “We can’t be too sure if that’s actually coming in this statement, or merely under consideration for next year’s budget. Perhaps that same uncertainty was why Governor Macklem was so cagy about where he’s going from here.”