PERU: Rate Hike Risks Rise as Inflation Hits 3-Year High, Gov’t Cuts Iran Ties
Sep-02 11:57
- The Peruvian sol traded with a firmer tone yesterday (+0.3%), as a further increase in CPI inflation in August increased risks of a BCRP rate hike in the coming meetings. Headline inflation rose to its highest level since Sept 2023 (4.44% y/y), driven by higher electricity costs and an increase in food inflation. Excluding food and energy, core inflation edged down by 7bp to 4.50% y/y, although this keeps it far above the BCRP’s 1-3% target range ceiling.
- Although the central bank has said that it expects the spike of inflation to be temporary, risks of a rate hike continue to grow ahead of next week’s MPC meeting. Goldman Sachs says that the August report does not provide a decisive signal for monetary policy, although they see a relatively high hurdle for remaining on hold given the projected inflation trajectory above the BCRP’s target. That said, they acknowledge that the risks are skewed towards the possibility of maintaining the wait-and-see stance.
- Meanwhile, JP Morgan believes that strong domestic demand and inflation already running above target makes the risk of a de-anchoring of inflation expectations more acute than in the past. They still expect the BCRP to tighten monetary conditions in Q4 26, with a 25bp hike to 4.5%.
- In other news, the government has announced that it will cut diplomatic relations with Iran, citing the disruption of trade in the Strait of Hormuz and the deterioration of democracy.
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US TSYS: Early SOFR/Treasury Option Roundup:Put Unwinds, Rate Hike Pricing Cools
Aug-03 11:52
SOFR & Treasury options trade outlined below: leaning towards low delta puts/put spds - two-way with some unwinds overnight. Underlying futures recovering from Friday's retreat - TYU6 back nearing Friday pre-open highs (TYU6 108-16, +16) with crude sliding (WTI -4.95 at $79.72/bbl) after Pres Trump held off on striking Iran over weekend (again) pledging a Hormuz Strait deal is close. Projected rate hike pricing eases vs. late Friday levels (*): Sep'26 at +15.7bp (+16.7bp), Oct'26 at 22.9bp (24bp), Dec'26 33.4bp (+35.9bp), Jan'27 37.4bp (41.5bp).
- SOFR Options:
- 1,000 0QZ6 96.25/96.62 1x2 call spds vs. 2QU6 96.18/96.43 1x2 call spds
- Block, 5,000 0QU6 95.50/95.75/96.00 put flys, 7.0 ref 95.805
- 1,700 0QU6 95.5/95.75/96.00 put flys ref 95.875
- 1,000 TYU6 108.5 straddles, ref 108-15
- 5,000 SFRU6 96.06/96.31 put spds, 15.75 ref 96.125
- 3,000 SFRU6 95.81/95.87/95.93 put flys, cab ref 96.125
- Treasury Options:
- +1,000 TYU6 108.5 straddles, 1-04
- over 10,400 wk1 TY 108 puts, 10 ref 108-14.5 (exp 8/7)
- -20,000 FVU6 106 puts, 17 ref 106-07.5
- Block, -4,000 TYU6 111 calls, 1 ref 108-13
- 1,500 TYU6/TYV6 112 call spds
- over 18,900 wk1 TY 109 calls, 4 ref 108-12
- -2,000 wk1 TY 108.25 calls, 24 ref 108-11.5 (exp 8/7)
- -2,000 TYU6 108/108.5 put spds, 13 ref 108-12.5
- +2,000 TYU6 107/108 put spds, 16 ref 108-12
- +2,000 TYV6 107 puts, 34 ref 108-02.5
- +5,000 TYU6 109/109.5/109.75 1x3x2 broken call flys, 4 ref 108-13.5
BUNDS: Looking to test Friday's high
Aug-03 11:05
- The German Bund is extending further gains as Desks unwind some of their positions.
- Seasonally, August is a Bullish Month, but the affairs in the Middle East will continue to be the main driver for Global Cross Assets.
- Friday's high is situated at 124.94. Above the latter would challenge last Tuesday's opening gap at 125.12, although most Desks will watch 125.25 which closely matched the 3.10% Yield level last Week.
EQUITY OPTIONS: EU Bank Call Spread
Aug-03 10:57
SX7E (18th Dec) 320/360cs 1x1.5, bought for 10.1 in 3k.
