US: Trump Oval Office Remarks Undeway Shortly

Mar-21 15:07

US President Donald Trump is shortly due to deliver remarks in the Oval Office alongside Defence Secretary Pete Hegseth LIVESTREAM. Jennifer Jacobs at CBS reports that Trump and Hegseth will "announce contract award to produce sixth-generation fighter jets".

  • The remarks come as Hegseth pledges to dramatically overhaul the Pentagon budget and end “spending identified by the Department of Government Efficiency that does not match the priorities of [Trump] or the Defense Department”.
  • Punchbowl noted yesterday: “Top Republicans are sounding the alarm over the Trump administration’s reported plans to relinquish U.S. leadership of NATO military operations in Europe and to scrap a planned buildup of American forces in Japan, among other dramatic changes to the combatant command structure.”
  • The Trump Administration is under additional scrutiny after the New York Times and Wall Street Journal reported that the Pentagon is expected to brief Elon Musk on top-secret plans for China – an unprecedented step for a civilian government advisor with business ties in China. Recognising that public opinion of Elon Musk is a vulnerability for Trump, the White House has aggressively headed off the reporting.
  • Musk told reporters after today's meeting at the Pentagon: "It's always a great meeting. I've been here before, you know,"

Historical bullets

GERMANY: 'Germany' Coalition Seen As More Likely Than 'Kenya' By Bettors

Feb-19 15:04

Political betting markets continue to show a 'grand coalition' between the centre-right Christian Democratic Union (CDU) and the centre-left Social Democrats (SPD) as the most likely election outcome. Data from Polymarket assigns a 54% implied probability that the two will form the next gov't after the 23 Feb federal election. In something of a shift, Polymarket now shows a 'Germany' coalition formed by the CDU, SPD and pro-business liberal Free Democrats (FDP) as the second-most likely coalition formation with a 17% implied probability, ahead of the 'Kenya' coalition of the CDU, SPD and Greens with a 16% implied probability and a 'Kiwi' coalition of the CDU and Greens on just 4.9%. 

  • The shift in sentiment towards a 'Germany' coalition (so-called as the party's colours match those of the German flag) is somewhat surprising given that opinion polling has consistently shown the FDP struggling to cross the 5% electoral threshold.
  • Historically, the CDU has been more inclined to work with the FDP than the Greens. However, in a televised debate on 16 Feb, CDU chancellor candidate Friedrich Merz when pressed on who he could see as potential partners replied “Possibly the Social Democrats, possibly the Greens", adding “I have great doubts about the FDP," potentially due to the party's reticence on relaxing debt rules to fund defence spending. 

Chart 1. Betting Market Implied Probability 'Which coalition will form the next German government?', %

2025-02-19 14_39_22-Polymarket _ Which coalition will form the next German go

Source: Polymarket

EURIBOR: Schnabel Reaction Provides Better Entry For Dovish M5 Structures

Feb-19 14:56

ERM5 options volumes have picked up today, after more subdued activity the prior three sessions. Volumes tilt heavily in favour of calls (~170k at typing versus 73k of puts), with dovish structures particularly prevalent this afternoon. This is potentially in response to the pullback in underlying futures prices (-4.0 ticks today at 97.790) following ECB Executive Board member Schnabel’s hawkish interview with the FT earlier. However, M5 options activity this month has still been notably more moderate than in January.

  • Options flow in January saw markets position for a more aggressive ECB easing cycle in Q2, with growth-related tariff concerns in focus following US President Trump’s inauguration. OTM call flys and condors in M5 were particularly popular.
  • Between 16-31 Jan, over 400k calls were traded on average per day. In February, average daily call volumes have fallen to 165k. As such, open interest in popular call strikes has visibly flattened out since the start of February (data as of yesterday).
  • The M5 call/put ratio has averaged 5x in favour of calls year-to-date. That’s excluding Jan 27, where 143k calls traded against just 1k of puts. Including this session, the ratio increases to 9x.
  • Friday’s Eurozone February flash PMIs presents the next key event risk for the EUR short-end.
euribor_m5_options

US: Latest SFR Options

Feb-19 14:56
  • SFRK5 95.81/95.68ps 1x2, bought for 1.75 in 1k.
  • SFRU5 96.25c, bought for 9.5 in 30k total (Screen and Pit).
  • SFRU5 96.00/96.25/96.50c fly, bought for 2.5 in 1k.