Looking For A Last Minute 'Cheap' Trade On A CPI Miss?

Tyler Durden's picture

Demand has exploded for a cheap options bet which stands to benefit should the market-implied odds of a Federal Reserve rate hike in December tumble.

As Bloomberg reports, the eurodollar call option involved expires Friday, so the biggest chance the wager has to profit lies with a weaker-than-forecast print on the September consumer price index, set for release at 8:30 a.m. New York time.

The options position emerged Wednesday, and was added to dramatically on Thursday, CME open interest data show.

Expectations are for a 0.6% rise in CPI MoM (Core CPI +0.2% exp) and the whisper number is for a 0.5% rise.

The current odds for a Dec rate hike are 80.2%...

The minutes of the Fed’s September meeting showed some officials are concerned that low inflation is more than temporary.

Rajan Dhall MSTA from fxdaily.co.uk provides a quick preview of what to expect:

Looking ahead to the US data releases this afternoon, there are some common themes to pick on, with the CPI rate set to rise on the boost in gasoline prices. Shortages and disruption in agricultural products will also lead to upward pressure in price, but will be 'factored out' to a certain degree.

 

For retail sales, the pick up in auto sales post hurricane season is expected show up strongly in these figures, giving GDP Q3 some much needed support given the detrimental weather impact on activity earlier in the quarter.

All this points to a good afternoon for the USD on the face of it, but therein lies the drag factor, so any miss on the data points could have a more volatile effect to the downside. That said, with so many of the Fed members focused heavily on inflation, a move through 2.0% in the headline rate will be an interesting dynamic given the rhetoric from the likes of Kashkari and Bullard, and to a lesser degree Kaplan. A December rate hike is largely priced in at present, and if normalisation is as strongly intended as Fed chair Yellen makes out, then this is the time to underline it - but a softer USD helps their cause and the market could be playing right into their hands - the conspiracy mongers and cynics will point to downbeat comments of late pushing for this in any case.

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LawsofPhysics's picture

"low inflation"...

 

LMFAO!!!  Right, because the true cost of maintaining a high standard of living just keeps going down...

FAIL!

"Full Faith and Credit"

mo mule's picture

They cook the books, measure inflation so low to screw the senior's out their cost of living increase, exclude food and energy then wonder why they can't see any inflation.? What a bunch of demwitts. They think there so smart but the screwed themselves even worse in the long run.  One day in the future John Law will make a comeback and the bankers will be hanged. That is unless Trump can start WW 3, then they can all die in their bunkers.  A cave, (bunker) is a grave. You know there's no 1%'ers if there no 99%'ers left alive?

You know the difference between a rut and a grave?  about 6" haha!

Sky flyer's picture

What just blew in the usd/jpy?

shizzledizzle's picture

LOL, not taking any chances on Friday the 13th... PPT is superstitious.

buzzsaw99's picture

everything just blew and the bears got roasted again.

 

...you fucked up, you trusted us.  [/otter, the central banker]

TradingTroll's picture

EUO gonna be a nice ride down from 1.19 to below parity the next few years.

So if I am short EUR but long USD then am I a bull or bear?

TradingTroll's picture

Fed Dec rate hike odds blew up

TradingTroll's picture

Looks like EURUSD wants to tag 1.19 before heading down again.