Stocks Love Rising CPI, And Gold Should Too

Monday‘s reversal I didn‘t trust, gave way to another upswing – still within this getting long in the tooth correction. It‘s not over, and corporate bonds aren‘t yet confirming – it has lately become a reasonable expectation that when the higher quality debt instruments (think LQD, TLT) have a good day, junk corporate bonds get under pressure, but seeing their (HYG) performance more aligned with the S&P 500 is what I am looking for in a rally on solid footing.

Which is what we‘re not having yet. Just compare the tech performance to the rest of the market, especially when viewed from the decling new highs-new lows (yes, these closed higher on Monday). It‘s apparent that yesterday‘s S&P 500 upswing was the result of reallocation to tech to the detriment (mild, but still) of much of the rest, in light of the key development of the day – falling Treasury yields.

The stock market simply keeps dealing with the rising nominal rates, which would be easier when these move less fast and steeply than till now. Consolidation of their recent move appears underway, in fits and starts, as long-term Treasuries are:

(…) trading historically very extended compared to their 50-day moving averages. While they can snap back over the next 1-2 weeks, the 10y Treasury bond yield again breaking 1.50% is a testament to the Fed not willing to do anything at the moment.

On one hand, the central bank is fine with commodities on the move, which aren‘t yet really showing in CPI, (today‘s 0.4% reading is a baby step in this direction) and which the Fed claims would be only transitory. On the other hand, the bond market is buying into this assertion to a degree, because otherwise, the long-term bonds decline would continue rather unabated. As we are in the reflationary stage when economic growth is rising faster than both inflation and inflation expectations, this laissez-faire approach to inflation isn‘t likely to bite the Fed now as much as to truly wake up the bond vigilantes.

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Monica Kingsley 1 month ago Author's comment

If you had been following my daily writings, comments and updates, you know that now as we're clearing the 3,900+ zone, the outlook has turned more bullish - indeed, the correction has been in its closing stages. And the gold and silver upswing goes on...

Monica Kingsley 1 month ago Author's comment

Update 2hrs into today's session:

Stocks keep knocking on my delineated 3,900 threshold amid inconclusive but improving credit markets with tech selling into strength are keeping the advance at bay - for now.

Even though signs of higher inflation are fundamentally positive for gold, it’s not yet enough to serve as an upswing catalyst - so, the yellow metal is ignoring the mildly positive CPI data, and GDX has been worryingly for the bulls probing lower values. TLT simply has to rise for GLD to run...

Anne Barry 1 month ago Member's comment

How much do you think $TLT needs to rise by?

Monica Kingsley 1 month ago Author's comment

It's about both price and time. Gold would appreciate strongly, and react with conviction to a spurt above 141 in TLT. That's still a realistic and quite conservative TLT target, which should ideally happen over the coming say 5 sessions. Commodities are though largely doing fine, so it might not be "required" for TLT to participate as strongly for gold to notice and move higher.

Did I get the purpose of your question right?