SONIA: Large Basis trade

The following table shows the unrounded estimates we've seen so far for August's various CPI readings (release is Thursday 0830ET). We will have more detail in our full CPI preview out later Tuesday.

• Bloomberg consensus is for core CPI to come in at 0.3% M/M rounded. Unrounded core CPI expectations suggest a slight skew toward risks of a rounded-up 0.4%, with an unrounded MNI median of 0.32% and range of 0.29% to 0.36%. That would be steady from 0.32% in July for the joint-highest M/M since January.  
• Early core PCE expectations largely align with core CPI views, ranging from 0.29-0.34% with a 0.31% median - pending Wednesday's PPI data which precede Thursday's CPI release.
• In terms of the category-by-category breakdown, supercore CPI is seen slowing from July's 0.48% (albeit there is a very wide range of views) with housing CPI seen relatively steady but upside pressure vs July in areas such as lodging and car insurance (airfares are also seen remaining strong).
• And core goods prices are roundly seen higher (had printed a below-expected 0.21% in Jul), with vehicle prices seen driving much of the upside, and tariff-impacted categories like apparel seen accelerating in the month.

Back to better SOFR call volume overnight into early NY trade even as underlying futures trade lower, Treasury options more mixed on lighter volumes. Projected rate cuts receding from late Monday (*) levels: Sep'25 at -27bp (-28.7bp), Oct'25 at -47.3bp (-49.6bp), Dec'25 at -69.2bp (-71.4bp), Jan'26 at -82.3bp (-85.1bp).

• SOFR Options:
  • 3,000 96.25/96.37/96.50/96.62 call condors ref 96.36
  • Block, 6,500 SFRZ5 96.62/96.75 call spds 1.75
  • +2,500 SFRM6/SFRU6 97.50/98.25 call spd strip, 18.5
  • 2,000 SFRZ5 96.37/96.43/96.50 call flys ref 96.355
  • 2,000 SFRZ5 96.25/96.37 call spds ref 96.38
  • 2,850 SFRU5 96.00/96.06/96.18/96.25 call condors, ref 95.985
  • +5,000 SFRU5 96.00/96.12 call spds, 1.5
  • +2,500 SFRZ5 95.81/95.93 put spds, 0.5 vs. 96.35/0.05%
  • +5,000 SFRZ5 96.50/96.62/96.75/96.87 call condors, 1.5
  • +10,000 SFRU5 95.93/96.00/96.06 call flys, 2.75
  • 2,000 SFRU5 95.87/96.00/96.12 iron flys, 4.0 ref 95.99
  • Block, +5,000 SFRU5 95.87/95.93/96.00 call flys, 2
  • Block, +2,500 SFRU5 96.00/96.12 call spds, 1.25
  • Block/screen, +4,000 SFRZ5 96.50/96.62/96.75/96.87 call condors, 1.5
  • +6,000 SFRZ5 96.00/96.12 put spds, 1.75
  • -2,000 0QU5 97.00/97.50 call spd vs. 2QU5 97.00/97.37 call spds, 2.0 net
  • +5,000 SFRU5 96.00 calls, 1.75
• Treasury Options:
  • 2,400 TUV5 104.75/105 1x2 call spds ref 104-14.25
  • 2,400 FVZ5 110 calls ref 109-29.25
  • 2,500 FVV5 109.75 puts, 17.5 ref 109-28.25
  • 5,000 TUV5 104.25/104.5 call spds ref 104-14.88
  • 5,000 TYV5 113.5/114 call spds ref 113-13
  • +2,000 TYV5 111.75/112.75 put spds 13 vs. 113-08.5/0.08%
  • +1,500 TYV 112/113 put spds, 15 vs. 113-16.5/0.23%
  • +1,500 TUH6 104.62/105.25 call spds, 13.5 vs. 104-14.75/0.20%

The Johnson Redbook Retail Sales Index rose 6.6% Y/Y in the first week of September (ending Sep 6), running a little above retailers' targeted 6.3% gain for the month.

• If sustained, this rate of sales would mark an acceleration from 6.1% in August and would be just below April's 6.7% for the 2nd-highest monthly growth since 2022.
• While reminding of the usual caveat that this is in nominal terms so may reflect ongoing tariff-related goods price inflation, the same can be said for Census Bureau retail sales data (for which the August release is on Sep 16, currently seen at +0.3% M/M for headline and 0.5% ex-auto/gas; the latter would imply the fastest Y/Y growth in 5 months at 4.9%).
• The anecdotal section of the report pointed to sustained retail demand going into the final month of the third quarter, notably with discount stores appearing to perform well. "Sales exceeded expectations in the first week of September, largely due to the Labor Day weekend, which brought in significant traffic early in the week. Both Sunday and Monday were particularly busy shopping days, marking the peak of this year’s back-to-school season. Shoppers responded enthusiastically to various Labor Day sales and promotions. Sales continued to be driven by the dual themes of back-to-school and seasonal apparel. Discount stores also reported strong food sales leading up to the long Labor Day weekend. While some retailers are approaching the end of their back-to-school calendar, others anticipate sustained momentum throughout the month, contributing to sales in electronics, children’s clothing, and school supplies."