Battle Royale

An epic battle was joined between a rising dollar (thus sinking gold), and a solid rise in regular trading that rode the strength of technical momentum.

The dollar was up 1.45% against the euro on mostly firm data, and was up against the yen and British pound, as well. The Commerce Department said that orders for durable manufactured goods rose 2.8 percent in January, the biggest increase since July. Also today, the Labor Department said that prices paid by consumers, excluding food and energy, rose 0.2 percent. Over the last year, core prices have risen just 1.6 percent, below the 2 percent the Federal Reserve considers optimal for a healthy economy.

The data can be seen as a bit of a mixed bag for all markets. On one hand, the durables report says the economy is still expanding. The inflation report says, however, that wages remain under pressure.

A third piece of information, the weekly unemployment claims report, rose to 310K, but that is consistent with continued job growth and there are extraneous factors are extraneous factors such as the brutal winter weather practically across the nation, and the continuing loss of jobs in the oil patch.

Speaking of oil, West Texas Intermediate is down at 3PM in New York by more than 4%, though off its lows for the day. Brent was also down, though not nearly as drastically. There was also a surprising large drop in natural gas of close to 6%. This outside bearish influence hurt gold somewhat. It’s hard to get a complete picture of how gold and crude are interacting these days. They couple and uncouple like swingers in a single bar in the 1970s.

Energy prices weighed on the Dow, in particular, but also nicked the S&P 500. NASDAQ is struggling to regain some momentum after yesterday’s losses, but is facing the headwind of the psychological threshold of the 5000 level.

Bond yields were up marginally after today’s U.S. 7-year offering, though the change is largely meaningless.

All of the dithering and lack of resolved direction in many markets harks back to what we highlighted yesterday. We are in a period where investors are seeking safety, but not looking for much in the way of haven plays except for select currencies, namely the dollar, yen and British pound.

As reflected in the VIX (volatility index), today’s markets were calmer than yesterday, which may be accounted for by the dollar’s strong showing. Gold, although it suffered because of the strong dollar was tranquil in bottom line terms. We’re surprised there isn’t more feedback into volatility readings from crude’s gyrations.

Wishing you as always, good trading,