The Chinese equity market rose nearly half a percent overnight. Hong Kong rose half a percent too, but Japan fell just over half a percent. JGB yields were unch at 7 bps above the BOJ’s target of zero.

European equity markets hung around the unchanged mark this morning. German government 10yr yields rose slightly, while government yields among the FPIGS fell slightly.

Over in the US, the equity futures were flat ahead of the open. The dollar was weaker vs. other colored paper except for the euro for a change. Gold was up about five bucks and testing last week’s highs again, while bond yields were higher.

We opened flat in the S&Ps and quickly slipped into slightly negative territory. After drifting a little lower over the next couple hours, the S&Ps began to bounce.

The S&Ps spent the remainder of the session slowly drifting higher until we briefly turned green during the last hour. Nevertheless, a closing slide hit in the final five minutes that sent the S&Ps out back near the mid-levels of the day with a loss of just a touch.

Volume ran about even with Friday’s pace (0.8 bln on the NYSE and 1.7 bln on the NASDAQ). Breadth was slightly negative on the NYSE and barely positive on the NASDAQ. New highs swamped new lows on both exchanges (150 to 25 on the NYSE and 134 to 49 on the NASDAQ).

Stocks Were Mixed:

Stocks were mixed in no particular pattern.

Commodities Were Mixed:

Brent crude bounced nearly 2 percent. Copper rose half a percent. Palladium rose over half a percent, and platinum fell half a percent . The CCI equal-weighted commodity index ETF (GCC) fell over half a percent.

Gold Edged Higher Again:

August gold popped about $4 out of the gate overnight in Asia up to as high as $1258 and then proceeded to give it all back and then some into the EU open, where the metal would print as low as $1252 to mark the overnight low.

From that low, the metal began to firm and eventually traded up to as high as $1258 I the US to mark the high for the session and the month-to-date. From that high, the metal faded back to the unchanged mark to go out near the lows of the day at $1255 but still up just a freckle on a spot basis.

Gold Stocks Were Spanked:

The GDX opened flat and immediately headed south as the metal pulled back from its high of the session that was hit before the equity open. The remainder of the session was a nonstop slide that eventually engulfed all of last week’s trading and sent the GDX out just off its lows with a loss of over a percent and a half. Volume also picked up for the first time in 5 sessions, and as has been the trend since February, volume obviously picked up on the downside, which doesn’t exactly give one the “warm and fuzzies.”

I still have concerns about how the market may react to a Fed on Wednesday that suggests it will begin trying to shrink its balance sheet in September.

Given the rout that the dollar has seen and the weak rally of late in gold and the miners in response to that intense dollar weakness, the risk is that a mere bounce in the buck and and/or in real yields could hit the gold complex even harder than one might normally expect, and today’s sizeable break in the miners in the face of a relatively firm gold price is unfortunately exactly the way I would expect the gold complex to trade if it was setting up to potentially sell off post-FOMC.

Let’s see how tomorrow goes, but I thought today’s action was extremely discouraging.

The Dollar Was Mixed vs. Other Paper:

The dollar was mixed vs. other colored paper. The dollar index rose a touch from Friday’s new 52-week low.

Treasuries Were A Little Higher:

Treasury yields rose 3 bps in the long end. Yields rose 1 bp in the Fed-sensitive 2yr note to 1.37%. Junk debt rose slightly, with the HYG picking up a freckle.

To Sum Things Up:

Stocks were a snoozer once again, and I suspect that even if the Fed does roil the bond and forex market on Wednesday with hint at balance sheet shrinkage in the Fall, stocks may well ignore it initially, as stock punters instead try and focus on the “positives” such as a steepening yield curve for the financials, as I would expect to see if the market begins to front run the Fed selling the long end.