US TSYS: Late Eurodollar/SOFR/Treasury Option Roundup
Amid ongoing two-way put positioning/consolidation, FI options see pick up in upside call buying (mostly Tsy and SOFR options targeting Nov-Dec expirys) as short end pricing in chance of 100bp hike next week cools (from just over 35% early Wed to under 25% at the moment). Prospect of "higher for longer" keeping pressure on underlying futures through mid-2023 (EDZ2-EDH3 -0.055 to 0.085). Select trades:
- SOFR Options:
- Block, -10,000 SFRM3 95.50/96.00/96.50 put flys, 8.5 ref 95.71
- Block, 20,000 SFRZ2 95.87/96.37 call spds, 9.5 ref 95.75 (coincides w/ Eurodlr Spd)
- 5,000 SFRZ 95.00/95.50/96.00 put flys
- +1,000 SFRH3 95.62 straddles, 65.0
- Block, 2,000 SFRV 95.81/95.87/95.93/96.00 call condors, 1.0
- 13,000 SFRZ 96.00/96.25 call spds
- Eurodollar Options:
- Block/pit/screen, total +55,000 Dec 95.25/95.50 put spds, 12.0
- Block, 20,000 Dec 95.12/95.50 put spds, 15.0 ref 95.455 (coincides w/ SOFR Spd)
- Treasury Options:
- +7,500 TYZ 116 calls, 60 ref 114-16.5
- 2,500 TYX 115.5/116 call spds vs. 111.5/112/113 put flys
- 5,000 TYZ 115.5 puts, 208 ref 114-15 to -15.5
- 7,500 TYZ 118 calls, 27 ref 114-15
- total 23,250 TYX 118 calls, 11-12
- Block, +10,000 TYV 113.5/114.25 put spds, 14
- Block, -7,500 TYV 116/117 put spds, 56
- 7,000 TYV 115.75/116.75 call spds
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CANADA: CIBC: Accelerating Core CPI Keeps BoC On For 75bp Hike In Sept
CIBC note that Canadian inflation has taken its foot off the gas as headline eased to 7.6% Y/Y in July, but other elements were not as reassuring, seeing the BoC on track for a 75bp increase in September.
- Gasoline prices were the main driver of the headline slowdown as expected but in bad news for consumers, food prices resumed their climb after taking a pause in June. CPI inflation excluding food and energy spelled further trouble rising 0.5% M/M on a seasonally adjusted basis.
- With the large revisions to CPI common in recent months muddying the message from the preferred core measures, the BoC is probably keeping a close eye on inflation ex food/energy these days and the increase from 5.3% to 5.5% Y/Y is not good news.
- Inflation seems to finally have started its long descent but the acceleration in inflation excluding food and energy will be a concern. Headline should fall further but the Bank’s focus should be on shelter prices (outside of mortgage costs), which should decelerate with the cooling housing market, and overall service inflation.
USDJPY TECHS: Bear Trigger Remains Exposed
- RES 4: 137.27 76.4% retracement of the Jul 14 - Aug 2 downleg
- RES 3: 136.58 High Jul 28
- RES 2: 135.96 61.8% retracement of the Jul 14 - Aug 2 downleg
- RES 1: 134.68 High Aug 16
- PRICE: 134.33 @ 16:07 BST Aug 16
- SUP 1: 131.74 Low Aug 11
- SUP 2: 130.41/130.00 Low Aug 2 / Round number support
- SUP 3: 129.51 Low Jun 2
- SUP 4: 128.64 Low Jun 1
USDJPY traded higher into the close. For now, firm short-term resistance has been defined at 135.58, the Aug 8 high. The Aug 10 sell-off highlights a reversal of the recent correction between Aug 2 - 8. A bearish theme remains in place following the Jul 28 bull channel breakout. The channel is drawn from the Mar 4 low and the break confirmed a bear cycle. Attention is on 130.41, the Aug 2 low and the bear trigger.
US: Late Corporate Credit Update: Cooling Off As Stocks Extend Gains
Investment-grade corporate credit risk gradually receded back to early session lows late Tuesday as stocks managed to extend highs: SPX eminis currently +27.75 (0.65%) at 4325.75; DJIA +363.23 (1.07%) at 34275.06; Nasdaq rebounding: +46.1 (0.4%) at 13173.91.
- Investment grade risk measured by Markit's CDXIG5 index -0.147 to 74.175; CDXHY5 high yield index at 102.949 (-0.068).
- Outperforming credit sectors (tighter or least wide): Senior and subordinated Financials both -0.5, followed by Utilities (-0.4), Consumer Discretionary and Materials both +0.1.
- Lagging sectors (wider or least narrow): Communications (+0.8), Energy (+0.7), Consumer Staples, Health Care and Industrials all +0.5
