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Posted October 23, 2025 at 12:48 pm
The bar is elevated for tomorrow’s Consumer Price Index (CPI), in my opinion, as I’m anticipating a lighter-than-expected result rounded to 3% for both the overall gauge and its core counterpart, driven by softening housing charges. The consensus is a loftier 3.1%. Against this backdrop, there is a mix of attractive risk-reward forecast trades related to both segments. For the headline figure, the “Yes” at 2.7% and the “No” at 3.4% are undervalued, in my view, at $0.96 and $0.92.
The core number offers opportunities as well, and I believe the “Yeses” at 2.3%, 2.5%, 2.7% and 2.8%, which range between $0.93 and $0.98 in price are undervalued. Additionally, I don’t envision a beat, so I like the “No” at 3.1%, which costs $0.81. My unrounded estimate for the core figure is 2.97%.
Canada’s new housing prices haven’t posted a gain since February and have declined for 5 consecutive months. Meanwhile, I’m expecting a modest recovery to 0.2% and in light of my projection I like the risk-reward profiles of the “Yeses” at -0.5% and -0.3% which are going for $0.96 and $0.84 and the “No” at 0.5%, priced at $0.97. There is a wide range of outcomes for this specific print, but a significant plunge or surge isn’t probable in my view. Real estate has been weak and heavy price declines have already occurred. A reading between -0.2% and +0.3% is the most likely.
This month’s University of Michigan (UMich) initial US Consumer Sentiment Index came in at 55; however, our forecast contracts are tied to the final release, which is due tomorrow. Meanwhile, the revision history, or the difference between the preliminary and complete readings are particularly modest, with the average and median in absolute terms standing at 0.95 and 0.70. Against this backdrop, I find the “No” at 56 attractive because it costs $0.70 and my pricing model shows that it should be at $0.80. The “Yes” at 52 and “No” at 58 are also undervalued in my view at $0.96, requiring adjustments of historic proportion to lose money.
Source for images: ForecastEx
Note: Prices are highest bids as of the morning of Oct. 23, 2025. Red circles around the thresholds were inserted by J. Torres to highlight his preferred “Yes” and “No” answers throughout different levels.
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This material is from IBKR Macroeconomics, an affiliate of Interactive Brokers LLC, and is being posted with its permission. The views expressed in this material are solely those of the author and/or IBKR Macroeconomics and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
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