FAST FIVE: Small Caps Face "Accelerant Flow" Risks As Nomura Warns FOMC Is "Larger 'Hawkish Risk' Than Most Are Anticipating"

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However, as Nomura's Charlie McElligott warns, when one looks at the economic data progression since the June meeting, it paints a real risk of a “hawkish surprise” potential later today, even just as today likely lays the groundwork for the Fed's September meeting to be the one where we see tangibly more “hawkish” Fed rates forecasts and confirmation that strategy discussions on tapering” are underway.

Another upside surprise in the June headline and core CPI, but particularly in the key “persistent” inflation input “Shelter” category-which will pressure the Fed's inflation fwds in standard lagging fashion, while strengthen the case for tapering of MBS QE (fwiw, June Pending Home Sales a +6SD surprise).

June Retail Sales was a “beat” as well (ex autos and gas at +2 stan dev)-meaning demand remains strong (i.e.

In fact, as we detailed yesterday, a closer look at the volatility term structure reveals that the S&P options market has begun to price in meaningful event risk around the late-August Jackson Hole Economic Policy Symposium.

This risk premium first appeared on 9-Jul following a local low in 10-year US Treasury yields below 1.3%, and has only widened in the last two weeks, suggesting that the S&P options market is trying to price in the risk of a hawkish turn by the Fed at Jackson Hole.

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