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S&P 500 turned decisively lower yesterday, and the bulls were clearly rejected with their upswing attempt. No matter how HYG erased some of its intraday decline before the closing bell, TLT is still falling hard. As stated weeks ago, without stabilization on the long end of the curve, and (temporarily but still) sustainable S&P 500 rally is inconceivable. So, no Q4 rally just yet.

Yesterday telegraphed key economic data came in mixed but is leaning bearish, bearish for the real economy. Manufacturing looks slowing down, and while unemployment claims retreated on a week-to-week basis, I don‘t trust that – the job market would feel the heat of a slowing economy and earnings (no, the reasonably OK TSLA earnings won‘t save the day, we‘re going below $200 EPS for S&P 500 if not $180s).

So, stocks are set up for another day in the red, but moving at least two dozen points below the hardy 3,680 level is required to declare the bears as in the clear. Odds are we get there today with the action I am seeing in bonds.

As stated yesterday:

(…) Treasuries show no sign of calming down – the parabolic move in yields doesn‘t look to be over, the 10-y yield is already 4.10% premarket, and that means significant risk-off headwinds today. My key 3,735 level had been decisively broken, and the bears are in the driver‘s seat. Certainly, the NXLF earnings jubilation being sold hard and fast on second thoughts concerning revenue and guidance, is a welcome sight confronting the barrage of fresh uberbullish calls from elsewhere meeting reality.

So, the S&P 500 relief rally is duly reversing, and it wasn‘t a move to get excited about – my key 3,795-3,810 zone didn‘t come into jeopardy. On the flip side, real assets are suffering as it‘s all again about yields and the dollar. Much is happening beneath the surface – the Fed swap lines providing other central banks with USD liquidity, is seeing quite some interest on a weekly basis, and I‘m not talking Switzerland and Credit Suisse only here as UK shouldn‘t be forgotten.

Crude oil is better placed than gold so far, where nominal and real rates are biting (it‘s the same what‘s powering banking), but I still stand by the call of silver squeeze approaching, just give it 3-4 miliion oz max more to be removed, and the tide is to turn.

The intraday reprieve in the dollar (counterintuitive given the rise in yields), is helping real assets today, and the corona quarantine length hints from China are likewise constructive. The real fireworks would come on Fed turning, or markets sensing the Fed is approaching the end of its rope, and won‘t have any other move left than to relent in the fight on inflation, and support the economy or fix the growing cracks abroad that bear on the USA as well. Then, especially precious metals would decouple, but as I had been stating for months with respect to gold especially, the heat is on for now.

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