EM LATAM CREDIT: Suzano Focused on Synergies - Positive

• Soft data point to significant inflationary pressures ahead, with businesses reporting sharp increases in prices paid and consumer inflation expectations soaring.
• On the business side, the ISM manufacturing prices paid index wasn’t quite as high as expected in April but at 69.8 it has still climbed since a recent low of 50.3 (coinciding with the US presidential election) to its highest since Jun 2022.
• This is echoed by the final April manufacturing PMI from S&P Global which found that “tariffs reportedly led to steep increases in both input costs and selling prices” and the highest output charge inflation in over two years. The latter is clearly important from cost passthrough point.
• Previous Fed Beige Book entries have noted difficulty passing price increases onto customers although the latest on April 23 still expects costs to be passed on: “Most businesses expected to pass through additional costs to customers. However, there were reports about margin compression amid increased costs, as demand remained tepid in some sectors, especially for consumer-facing firms.” Directly with respect to tariffs and US trade policy: “Many firms have already received notices from suppliers that costs would be increasing. Firms reported adding tariff surcharges or shortening pricing horizons to account for uncertain trade policy.”
• On the consumer side, the U.Mich survey has seen both short- and long-run inflation expectations surge to multi-decade highs including its 1Y figure at the highest since 1981. Further increases look possible judging by a useful chart U.Mich provided (currently found here) with responses throughout the month demonstrating strong increases after Apr 2 tariff announcements before some pulling back after the Apr 9 reciprocal ‘pause’. 

• Realized inflation data had seen a renewed wedge between core CPI and core PCE in recent months although they shared a similar trait in March with a particularly soft print.
• One notable driver here was a sharp -3.5% M/M decline in lodging away from home prices, the largest since Jan 2022. It’s a noisy series and so should be treated with caution, but considering it comes against a backdrop of reduced foreign arrivals at US airports as a consequence of a broad array of Trump administration policies, it offers an interesting partial counterbalance of expected price increases on large tariff increases.
• With that in mind, core PCE inflation came in at just 0.03% M/M in March after a booming 0.50% M/M in February and a solid 0.34% M/M in January.
• This recent trend strength means that whilst the year-ago rate fell three tenths to 2.65% Y/Y in March, both three- and six-month rates continue to run firmer at 3.5% and 3.0% annualized respectively.
• Some residual seasonality concerns around the start of the year may still be at play but this marks a still notable acceleration in the six-month rate from the 2.3% in Sep 2024 having come close to the 2% inflation target.
• For context, this recent trend strength along with some FOMC members starting to factor in tariff assumptions saw a marked increase in near-term median inflation expectations back in the March SEP. The median participant increased their 4Q25 forecast from 2.5% in the Dec SEP to 2.8% (central tendency 2.7-3.0%) but kept to the same 2.2% for 4Q26 albeit with both legs of the central tendency drifting a tenth higher to 2.1-2.4%. That is to say, most expected the uptick in inflation to be temporary but these forecasts of course came before much more wide-ranging reciprocal tariffs in early April.

SOFR & Treasury option volumes gradually improved Tuesday, flow shifted from low delta put trade to more pared with some upside call structures as underlying pared losses ahead of Wednesday's FOMC, curves mildly steeper/well off early highs. Projected rate cut pricing gains slightly vs. late Monday levels (*) as follows: May'25 steady at -0.5bp, Jun'25 steady at -8.4bp, Jul'25 steady at -25.2bp, Sep'25 -46.2bp (-45.3bp).

• SOFR Options:
  • +20,000 0QU5 97.25/97.75 call spds 6.0-6.5 over SFRN5 96.75 calls
  • +5,000 SFRN5 95.75/95.87/96.00 put flys, 2.25
  • +8,000 SFRN5 95.50/95.62/95.75/95.87 put condors, 2.0 ref 96.16
  • +5,000 SFRH6 97.25/98.25 call spds .25 over 2QH6 97.12/98.12 call spds
  • +5,000 SFRZ5 96.50/2QZ5 96.75 call spds, 0.5
  • +25,000 SFRU5 96.75/97.50 call spds, 4.75 ref 96.16
  • 8,250 0QZ5 96.25/96.37 put spds ref 96.85 to -.855
  • +2,500 SFRZ5 call spds, 4.0 ref 96.46
  • -2,000 SFRK5 95.87/95.93 put spds, 5.75
  • Block, 5,000 SFRM5 95.62 puts, 0.5 vs. 95.765/0.10%
  • 3,000 SFRQ5 96.25/0QQ5 97.25 call spds
  • 5,500 0QU5 97.25/97.75 call spds ref 96.845
  • 2,500 SFRN5 95.68/95.75/95.87 2x3x1 put flys
  • 5,000 SFRK5 95.75/95.81 put spds ref 95.795
  • 6,000 SFRN5 96.25/97.25 call spds ref 96.15
  • 3,000 SFRV5 95.62/95.75 2x1 put spds
  • 2,500 SFRM5 95.75 puts ref 95.79
  • 2,000 SFRK5 95.75/95.87 strangles, ref 95.785
• Treasury Options:
  • Block, -7,500 wk2 TY 109.75/110.25/110.75/111.25 put condors, 13.0
  • +10,000 wk2 FV 108.75/109 call spds, 3
  • Block, 10,000 TYN5 108.5 puts, 15 vs. 111-04/0.19%
  • 1,500 TUM5 103.37 puts vs. 103.75/104 call spds
  • 7,300 TYN5 109 puts, 22 ref 111-07
  • over 7,000 FVM5 108.25/109.25 1x2 call spds, 11
  • 1,000 FVM5 107.25/108.25 put spds vs. 108.25/109.25 call spds ref 108-12
  • over 5,300 wk2 TY 110.5 puts, 9 ref 110-29.5 (exp 5/9)
  • 1,600 TYM5 109.25 puts, ref 111-00