CANADA: Jan CPI Preview: Analysts Focused On Base Effects (3/3)
Feb-13 20:36
Some analyst commentary on what to expect in the January inflation report:
- CIBC: "The various CPI measures should point to a 12-month underlying inflation rate still in the 2½% range, not nearly far enough above target to bring on any discussion of a rate hike given all the uncertainties surrounding economic growth ahead. ..While gasoline prices were broadly flat on the month, food prices likely added to inflation once again... On an annual basis measures of core inflation should continue to ease, driven in large part by a softening in shelter inflation...Measures of underlying inflation are easing closer to 2%, and headline inflation could, temporarily, dip slightly below that mark in the coming months as last year’s GST cut falls out of the annual comparison. However, inflation isn’t on its own slow enough to justify further rate cuts, and we continue to see no change in interest rates this year."
- Desjardins: The uptick in Y/Y headline inflation to 2.5% reflects "continued upward pressures from base effects tied to last year’s GST/HST holiday. Falling energy prices should partially offset an anticipated further increase in food prices. Given these forecasts, we expect the Bank of Canada’s preferred core inflation measures held steady at 2.6% on a 12‑month basis, with three‑month annualized core measures also probably remaining below 2% for a second consecutive month. Overall, inflation continues to be muted enough for the Bank of Canada to focus squarely on supporting growth should any negative shocks hit the economy."
- National: Behind the expected downtick to 2.3% Y/Y in headline :"The slight increase in gasoline prices during the month was probably not enough to move the needle, and the headline index likely remained unchanged (M/M)".
- RBC: The 2.6% Y/Y headline inflation report is "largely due to tax-related distortions — the prior year’s GST/HST holiday was not repeated this year – alongside still elevated grocery price growth. Food price growth could spike above 7%, driven by rising restaurant costs compared to tax-exempt levels a year ago. But, grocery store price growth also likely remained high after hitting 5% in November. Energy prices, meanwhile, are tracking 11% below a year ago with gasoline down 17%—roughly half attributable to the removal of the carbon tax. The BoC has limited control over global commodity trends affecting energy and food prices. The central bank will continue monitoring broader underlying price growth measures more closely. Median and trim CPI measures ... have been gradually edging lower—but remain above the 2% target."
- Wells Fargo: Base effects are seen "peaking" in January with a 2.5% Y/Y headline reading. "Base effects reflect the lowering of prices between December 2024 and February 2025 because of the temporary GST/HST holiday...The temporary rise in year-over-year headline inflation is likely to keep the market and consensus baseline view for an on hold Bank of Canada (BoC) intact near-term. We believe these base effects are worth about 0.6-0.8 percentage points and imply a substantial stepdown in inflation as early as the February report....We believe headline inflation is likely to step down to below 2% as soon the February report (1.8% per our nowcast). As such, the macro narrative is likely to shift from the noise of elevated headline inflation to cooling underlying core inflation. This, combined with sub-trend growth, economic slack and downside risks to growth from continued trade uncertainty with the US, we see greater room for the BoC to cut rates than hike."
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AUDUSD TECHS: Monitoring Support
Jan-14 20:30
- RES 4: 0.6872 38.2% retracement of the 2021 - 2025 L/T downtrend
- RES 3: 0.6858 1.000 proj of the Nov 21 - Dec 10 - 18 price swing
- RES 2: 0.6795 0.764 proj of the Nov 21 - Dec 10 - 18 price swing
- RES 1: 0.6767 High Jan 7 and the bull trigger
- PRICE: 0.6683 @ 16:16 GMT Jan 14
- SUP 1: 0.6664 Low Jan 9
- SUP 2: 0.6632 50-day EMA
- SUP 3: 0.6593 Low Dec 18
- SUP 4: 0.6553 Low Dec 3
Recent weakness in AUDUSD still appears corrective and has allowed an overbought condition to unwind. Initial firm support around the 20-day EMA, at 0.6681, has been pierced. A clear break of it would expose support at the 50-day EMA, at 0.6632. The area between the two EMAs still represents a key support zone. For bulls, a resumption of the uptrend would open 0.6795 next, a Fibonacci projection.
US TSYS: Late Treasury Roundup: Holding Near Highs, Scotus Kicks Can on Tariffs
Jan-14 20:22
- US Treasuries look to finish moderately higher Wednesday, holding a relatively narrow band since midmorning after the Supreme Court opted to not comment on Pre Trump's IEEPA tariff actions for the second time (and no word as to when they may make any comments).
- Some sporadic selling kept a lid on Tsys prices after this morning's PPI MoM came in as estimated, strong core as YoY rises slightly, Retail Sales gained marginally with prior down-revised.
- Our crude proxy for PPI inputs in core PCE shows a modest 0.05pp contribution to M/M inflation in November after one of its strongest in recent years with 0.18pp in October. It sees a return of monthly contributions towards the 0.08pp in Sept (revised up from 0.07pp in the last published report) and 0.05pp back in Aug.
- Treasury futures extended highs late morning - not headline driven but more likely mirroring Bund bid into the London close. Currently, TYH6 trades 112-15 (+6.5) vs 112-18 high, key short-term resistance is unchanged at 112-31, the Dec 18 high. Curves flatter: 2s10s -2.060 at 62.198, 5s30s -0.7 at 107.495.
- On the flipside, a bear threat in Treasuries remains present and for now, short-term gains are considered corrective. Attention is on support at 111-29, the Dec 10 low and bear trigger. A break of it would confirm a continuation of the bear cycle. Note too that a head and shoulders reversal pattern on the daily chart also highlights a bearish threat. Scope is seen for a move towards 111-19 initially, a Fibonacci projection.
- Conviction over the short-term trajectory for the dollar continues to be lacking, amid the plethora of risks surrounding the new Fed Chair and developments regarding Greenland and Iran.
US TSYS: Late SOFR/Treasury Option Roundup: Reposition, Unwinds & Vol Sales
Jan-14 20:09
SOFR & Treasury options overnight volumes remained rather modest on net, two-way positioning and a decent amount of vol selling (note TYJ6 111/113.5 strangle seller block below) on the day as underlying futures holding moderate gains/off highs. Projected rate cut pricing gains slightly vs. late Tuesday levels (*): Jan'26 steady at -1.2bp, Mar'26 at -7.1bp (-6.3bp), Apr'26 at -11.7bp (-10.7bp), Jun'26 at -24.4bp (-22.5bp).
- SOFR Options:
- +5,000 SFRU6 96.62/97.12 1x2 call spds, 8.75 ref 96.77
- -12,500 0QJ6/0QG6 96.87 call spds, 5.0
- -20,000 SFRJ6 96.43 puts, 1.75 vs. 96.59 to -.58/0.20%
- -5,000 SFRH6 96.37/96.50 1x2 call spds, 0.0 ref 96.39
- Block, 4,000 SFRU6 96.75/97.12 2x3 call spds, 12.25 net ref 96.76
- Block, 25,000 SFRJ6 96.43/96.50 3,2 put spds, 3.75 net ref 96.58
- 5,000 SFRF6 96.37 straddles ref 96.39
- -10,000 SFRH6 96.43/96.56/96.68/96.81 call condor, 1.75 ref 96.39
- 10,000 0QU6 96.50 puts vs. 97.00/97.50 call spds ref 96.78
- 2,500 0QG6 97.00/97.18 call spds
- 3,500 0QH6 96.68/96.81/96.87/96.93 put condors ref 96.85
- over 5,000 SFRJ6 96.37/96.43 put spds ref
- 3,000 SFRH6 96.25/96.31/96.37 put flys
- over 15,000 SFRJ6 96.43/96.50 3x2 put spds ref 96.59
- Treasury Options:
- Block, +10,000 USH6 111/USJ6 109 put spds, 7
- Block, +10,000 USH6 123/USJ6 121 call spds, 17
- Blocks, -20,546 TYJ6 111/113.5 strangles, 46
- 5,000 TYH6 111.5/113 strangles, 35
- 5,000 TYH6 116 call vs. TYK6 110.5 put ref
- 3,800 TUH6 104.5/104.75 call spds ref 104-09.12
- Block, +6,480 USH6 123 call vs. USJ6 121 call, 17 net Apr over
- Block: +6,210 USH6 111 put vs. USJ6 109 puts, 7 net Apr over
- Block, -10,000 TYH6 113.5 calls, 13 ref 112-11.5
- +10,000 TYG6/TYH6 112 put spds, 19 ref 112-11
- Block, 8,000 TYH6 112.5 straddles, 1-09
- -2,000 TYG6 112.25 calls, 14 ref 112-06.5
- 1,275 FVH6/FVJ6 110 put spds on 2x1 ratio
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