CPI today. Tariff impact?
July 25, 2025
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–Quiet session Monday. Large trades: BUY 50k 2QH6 9800/9825c for 1.0 ref SFRH8 9656.0. Settled 2.25 and 1.50 or 0.75 vs 9655.5. Expires 13-March 2026
SFRU5 9593.75/9600cs 1.375 paid for >50k on the day, settled 1.25 vs 9585.0. (5.0/3.75). Expires 12-Sept, while the Sept FOMC is on the 17th. Call spread would likely fill on an ease at the July 30 FOMC (with more expected). Otherwise, it depends on very strong easing prospects for Sept and high odds for the Oct 29 meeting. Note that FFQ5 which had been heavily bought a couple of days ago at 9568.5 and traded 69, was 68/68.5 yesterday. This contract directly prices odds for a July 30 Fed cut, and those odds are small(er).
5k add, 2QU5 9700/9750 vs 3QU 9675/9725cs for 0.50. Buy green, traded flat last week. Synthetic steepener. All of these trades are dependent on the idea of aggressive near-term cuts. They don’t have to happen immediately, but will probably require a catalyst in the form of much weaker econ data or an unwelcome geopolitical event.
–CPI today expected 0.3 both headline and Core on month/month basis. CPI expected 2.6% yoy vs 2.4% last. A lot of headlines this morning about rising long-end yields in Japan; new highs. Yesterday the US 30y came awfully close to 5% (probably around 112-11 in USU5; the low was 112-15). Headline which caught my eye in the Chicago Tribune:
State Farm defends hefty 27.2% hike in Illinois homeowner insurance rates.
Note that 10-year breakeven (treasury – inflation indexed TIP) edged to a slight new recent high 241.7 bps. Not exactly worrisome, but I’m sure the Fed would be a lot more comfortable with the low end of the recent range which is closer to 2.25%.
–Bank earnings this morning JPM, C, WFC and BLK
