The Chinese equity market rose a percent overnight. The offshore dollar/yuan was flat. Gold in yuan rose a touch.
Elsewhere in Asia, Hong Kong popped nearly 3 percent. Japanese equities rose half a percent. JGB yields rose 2 bps to 1.33% and a new 52-week high. The dol/yen rose over a percent.
European equity markets were up half a percent or less again this morning. German 10yr yields jumped 5 bps to 2.48%. The eur/dol rose a touch.
Over in the US, the equity futures were flat ahead of the open. The dollar was weaker vs. other colored paper. Gold was off 20 bucks for no apparent reason, and yields were flat.
Before the open, we got the January CPI data and learned that the headline CPI rose 0.5 percent to a 3 percent annual clip, and the core rose 0.4 percent to a 3.3 percent annual clip. Both were hotter than the consensus.
As for the reaction, the S&Ps plunged about a percent. The dollar popped vs. other paper, and the DXY rose to the top of the compression triangle on the chart. Gold slumped $10 to as low as $2863, and yields popped.
The S&Ps opened down about a percent and spent the rest of the session slowly working higher to eventually go out near the highs of the day but still down a third of a percent.
Volume picked up to the 60 day average. Breadth was over 2 to 1 negative on the NYSE and slightly negative on the NASDAQ. New lows edged out new highs on the NYSE (86 to 62), and new lows swamped new highs on the NASDAQ (210 to 111).
Stocks Were Lower:
Stocks were mostly lower, with the interest rate sensitive names being particularly heavy for obvious reasons.
The XHB homebuilding ETF tumbled over a percent, and BLDR slumped nearly 4 percent.
Positions: I left my shorts unchanged in SPY, QQQ, MDY, IWM, ARKK, XHB, and BLDR.
Commodities Were Lower:
Brent crude fell over 2 percent on chatter that negotiations to end the war in Ukraine are beginning. Natural gas rose half a percent. The oil stocks were lower, with the oil and gas ETFs all losing 2 to 3 percent. The uranium equities bounced, with the URNM picking up half a percent.
Copper rose over 2 percent. Other base metals were higher too, with the DBB base metals ETF picking up over half a percent. The copper stocks continued to bounce, with the COPX adding a percent. The steel stocks backed off, with the SLX losing over a percent. The XME metals and mining ETF lost nearly a percent.
Palladium fell nearly a percent, while platinum rose nearly a percent.
Silver rose over a percent but once again failed to take out last week's highs.
The SLV/GLD ratio bounced a percent.
The CCI equal-weighted commodity index ETF (GCC) fell a touch from yesterday's new 52-week high. The energy-heavy DBC commodity ETF fell over a percent. The Bloomberg Commodity Index (DJP) fell a touch.
Gold Slumped And Then Recovered:
Spot gold worked lower overnight with the dollar and opened down $17 at its overnight low of $2880 in the US. When the hotter CPI hit the tape and the dollar popped, the yellow metal initially collapsed to as low as $2864 but then quickly began to reverse back to the upside as the dollar weakened from its highs.
The metal would proceed to climb over the next several hours and eventually popped back into positive territory and up to as high as $2909 for a gain of about $12.
From there, the metal then weakened back to $2894 but firmed again into the equity close to go out back up near the highs at $2903 with a gain of just a hair.
Gold Stocks Popped:
The GDX opened up a touch but below the 5 dma and briefly dipped lower before surging above Monday's highs. After topping around the same time that the metal did at mid-day, the GDX then slipped into the close to go out off the highs but still up over a percent and a half to a new closing high for the move. The GDX also once again closed above its 5 dma, which leaves the bulls firmly in charge.
GOLD won at the "beat the number" game and popped over 6 percent to a new high for the move.
The GDX/GLD ratio surged over a percent.
The silver stocks were even firmer than the gold names. The SIL rose nearly 3 percent. The SILJ rose over 3 percent, and the GDXJ rose nearly 2 percent.
Real yields were higher, and nominal yields were higher too. The yield curve steepened a little per the 2/10 spread again. The dollar was mixed vs. other paper, and for once, gold seemed to swing around based on the movements in the dollar (at least on intraday basis).
Gold and the GDX still remain above their 5 dma's, so in very simplistic terms the trend remains "up" until that changes.
I sort of wonder if the weakness we saw overnight in gold was due to the chatter about a deal coming together for a truce in Ukraine. Knowledge about a growing likelihood of such a deal by those "in the know" may also be what caused the overnight $45 spanking on Monday night. That's a lot of speculation on my part obviously, but I think it's a potential explanation for some of the odd swings we've seen.
Until there is actually a confirmed deal over Ukraine though, I don't think we're going to see a big reaction in gold.
With that said, any potential hesitation over a potential deal happening (at some point) in Ukraine doesn't change the fact that the bulls remain in charge despite both gold and GDX being very overbought at this point.
We'll get the PPI tomorrow, but given the way the market blew off the hot CPI, I'm not sure why it would matter? $3000 by Friday?
I say $3000 by Friday only partially in jest, because when a market refuses to go down and take a rest when it probably should, it can often then do something extreme to the upside before reluctant sellers are convinced to finally take profits.
My gold model moved back to neutral, which also argues for renewed upside soon given that the gold complex is refusing to correct on a Trifecta SELL.
Positions: I punted my GDXD after it was apparent that gold and GDX were going to rally despite the hotter CPI, but I'll be looking to put it back out again on a close in the GDX below the 5 dma. Ideally if I was smart enough to still be long, I wouldn't sell my long until a close below that 5 dma too. I may even by some GLD calls tomorrow.
The Dollar Was Mixed:
The dollar was largely unchanged vs. other paper, except for the yen, which it rallied against after swinging wildly vs. other paper intraday. The dollar index swung to the top and then to the bottom of its compression triangle on the charts but eventually ended back in the middle of the day's range with a gain of only a freckle.
Bitcoin rose over 2 percent (I remain long IBIT; I don't trade it). MSTR, COIN, RIOT and other BTC derivatives were all higher.
Treasury Yields Rose:
Treasury yields rose 9 bps in the long end, which left the 10yr yield at 4.63%.
The 2/10 spread widened a little. As the curve steepens after being inverted for an extended period of time, we typically start to see things go awry in the equity market ahead of a recession. That will bring on rate cuts eventually, which is what gold wants, but not yet.
Yields in the Fed sensitive 2yr rose 7 bps to 4.36%. Junk debt was lower, with the HYG losing a touch. LQD, which is the investment grade corp bond ETF, fell half a percent.
To Sum Things Up:
We're still waiting to see if Trump will enact the reciprocal tariffs that were threatened last week that supposedly will come at any time over the next couple days (possibly tomorrow before he meets with Indian Prime Minister Modi). Will stocks celebrate those tariffs or panic? I guess it depends on which market shows up that day.
But for last Friday's head fake to the downside on the threat of these reciprocal tariffs, I'd argue the pattern suggests that gold will rally with the dollar on that news. We shall see...
REMAIN FLEXIBLE