Bank of England Sees Surge in Higher-Risk Collateral 
Bank of Korea Raises Rates to 3% as Inflation Stays Sticky 
Global Central Banks Brace for More Rate Hikes as Inflation Risks Rise 
Goldman Predicts 50% Odds of 10% U.S. Tariff on Copper by Q1 Close 
Lithium Market Poised for Recovery Amid Supply Cuts and Rising Demand 
Gold Surges Past $4400 on Crude Oil Rally; Bullish Trend Dominates 
RBNZ Raises Interest Rate to 2.75%, Kiwi Dollar Slides 
China’s Growth Faces Structural Challenges Amid Doubts Over Data 
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
Australia Inflation Beats Forecasts, Raising RBA Rate Hike Risk 
Geopolitical Shocks That Could Reshape Financial Markets in 2025 
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Yesterday’s US inflation data disappointed. Both the overall rate and the core rate came in below analysts’ expectations. Is inflation pressure not going to materialize? As a result, shall we not see rapid USD-positive rate hikes? Let’s not get too excited.
a) The Fed expectations did not suffer as a result of yesterday’s data (refer 1st chart).
b) If one carefully smooths the (seasonally adjusted) inflation data one can see that the (core) inflation trend remains very close to the 2% target (2nd chart).
The Fed does not provide for an overshooting of inflation – with the exception of individual FOMC members.
Contemplating these factors, we explore the factors driving the decline in Treasury holdings at large commercial banks. Rising recession tail risk motivates hedging against a sharp rise in term premium and advocate below interest rate trading strategy.
Use OTM 3s/10s/30s flies to monetize richer term premium in a rally.
Though the base case remains for above-trend growth and firming inflation, rising recession risks highlight the tails to a sharp shift in the outlook.
Weighted butterflies are a good replication of term premium, which tends to richen as the Fed cuts rates. Sell OTM 1Yx10Y receiver swaptions versus a weighted amount of 1Yx3Y and 1Yx30Y.
Sell $100mn notional of a 1Yx10Y 22-delta receiver (notification 4/29/19, maturity 5/1/29, strike @ 2.537%, premium 69.6c) versus buying $172mn notional of a 1Yx3Y 25-delta receiver (notification 4/29/19, maturity 5/1/22, strike @ 2.620%, premium 28.0c) and $12.4mn notional of a 1Yx30Y 25-delta receiver (notification 4/29/19, maturity 5/1/49, strike @ 2.582%,premium 175c). This trade is constructed to be premium neutral at inception. Courtesy: JPM
Currency Strength Index: FxWirePro's hourly USD spot index is inching towards -76 levels (which is bearish) while articulating (at 12:00 GMT).
For more details on the index, please refer below weblink:
http://www.fxwirepro.com/currencyindex
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