The inflation event risk cleared on Thursday morning in the US with no issues.

Core CPI printed back-to-back 0.2% increases for the first time since early 2021, and they were “low” 0.2%s to boot.

At the risk of uttering “famous last words,” that may be the death knell for sundry summer vol spike calls. A September Fed hike is very unlikely.

“Now, the directional equities risk pivots back to potential buy-flow catalysts and ‘melt-up fuel’ over the next two weeks,” Nomura’s Charlie McElligott said, just prior to the CPI release.

He flagged “extreme” short gamma, which of course leaves the market open to so-called “accelerant” flows, whereby buying begets more buying (or vice versa in a downtrade).

Charlie also took note of a few potential flow catalysts which could theoretically ignite the combustible short gamma environment, including an unwind of dealer positions in VIX futures, and an “enormous” $479 billion of discarded delta over the past two weeks, a 3%ile two-week flow “which could make us susceptible to a squeeze and feedback into rallies.”

But there’s more. In addition to those prospective flow catalysts, McElligott said it’s worth watching for evidence to suggest a large SPX put spread buyer is throwing in the towel. That position, Charlie said, “tends to actively trade.” “[The buyer] could be getting an itchy trigger finger and may look to close out into any further spot index rally,” he went on. That’d “squeez[e] equities higher as they capitulate and [the] hedge is removed,” and in the event the position is closed out into a worsening selloff, the monetization would help arrest the slide, or at least apply the brakes momentarily.

As to the risk of systematic de-leveraging from the asymmetric setup discussed here on too many occasions to count (including Thursday morning), Charlie reiterated that “whatever the macro catalyst may be, systematic strategies remain the primary ‘stocks lower’ accelerant flow risk, tilted towards larger notional selling in a selloff than buying further into a rally.”