J.P.Morgan Provide A Pre-CPI Overview

J.P.Morgan write “(U.S.) inflation event risk pricing is elevated, effectively prolonging the Dec interruption of a normalisation process that took hold mid last year. At ~5 vol over the base vols, CPI event risk premia is quite notably now on par with the upcoming Jan FOMC.”

• “Low yielders uniformly pack more event risk (relative to their base vols) than the high yielders.”
• “Separate comparison with the historical realised CPI day vols finds NOK, SEK, JPY and CHF to be elevated, EUR, AUD, NZD and CAD fair to slightly cheap, and PLN, HUF, BRL and MXN cheap.”
• “Long USD/FX gamma vs short EUR /FX gamma in GBP, CAD and PLN should overall fare the best within the vol space if CPI manages to cause any type of stir.”
• “From the point of directional exposure, for risk-on in the event of a soft print, the event risk set up and vol surface backdrop are supportive of USD/CAD put spreads as well as AUD/USD and NZD/USD call spreads, while 2wk USD/JPY >1% OTMS & USD/CAD > 1% OTMS at 8% give cost effective hedges in case of a firm print.”