[Chart courtesy of MarketWatch.com]

1. Moving the markets

Two of the three major indexes found themselves in an early hole, but late session bullishness reversed the initial trend and assured a steady upward climb. The Dow reached its unchanged line, the S&P 500 ended up with moderate gains, but the Nasdaq bounced in the green all day and produced a solid advance of 0.73%.

The 3-day losing streak is now in the rearview mirror with some support coming from the widely analyzed FOMC report, which showed that the Central Bank could begin tapering its asset-purchase program as soon as by the middle of November:

Participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate,” the minutes said.

No surprises there, so traders focused on the CPI numbers. The index jumped 0.4% in September from the prior month and 5.4% year over year vs. expectations of 0.3% or an annualized rate of 5.3%. Of course, one analyst could not help himself by stating that most of these inflationary pressures are transitory. Yeah right.

The US Dollar dipped and ripped and then lost all momentum and closed down -0.51%, joined by 10-year bond yields, which also showed weakness. This combination, coupled with continued uncertainty, proved to be a boon for gold with the precious metal roaring towards its $1,800 level and gaining almost 2%.

Despite the rebound supported by dip buyers, there is one segment of the markets that still does not participate, as Bloomberg shows in this chart. Makes me wonder why…

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

It had to happen eventually, and today was the day when Atlanta Fed President Bostic finally broke away from the common theme, and confirmed what I have been saying all year:

Price surges caused by supply-chain disruptions, or the reopening of the services sector are likely to last, i.e., they are not transitory, and seem to be broadening to more parts of the economy, i.e., getting worse.

In other words, inflation will be with us and will not be of a transitory nature. While other Fed officials are singing a different tune, I would not be surprised if they adopt this type of narrative—eventually.

The markets continued to be affected by volatility, and the result was sloppy and choppy trading, with dip buyers finding no reason to step in and clean up this mess. With a key inflation reading (CPI) ahead of us, as well as retails sales numbers, and the earnings season on deck, the major indexes slid for the third straight session.

Adding to this uncertainty is Wednesday’s release of the minutes from September’s FOMC meeting, which will be dissected for any clues about the Central Bank’s plans to reduce easy monetary policy.

Headwinds abound, and traders are looking for directional guidance wherever they can find it, with slower economic growth ahead being a major threat.

During this session, the US Dollar ended up a tad, as 10-year bond yields slipped to 1.573%, which allowed Gold to edge higher by a moderate 0.32%. While this day was volatile, it was quiet with tight trading ranges prevailing across the indexes, but this will likely change given the variety of upcoming events.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early broad rally bit the dust, with the major indexes losing all initial gains and not just sliding into the red but also closing at the lows of the session.

While the bond market was closed in the US, the Chinese probably wish theirs would have been too, but no such luck. They were fully open, and traders took advantage of it by focusing on one thing only, namely selling.

ZeroHedge called it this way:

In the aftermath of our viral post “”Catastrophic” Property Sales Mean China’s Worst-Case Scenario Is Now In Play”, China property firms bonds were hit with another wrecking ball on Monday as Evergrande was set to miss its third round of (offshore) bond payments in as many weeks and rival Modern Land became the latest scrambling to delay deadlines.

And then this:

“It’s a disastrous day,” Clarence Tam, fixed income PM at Avenue Asset Management in Hong Kong, told Reuters, highlighting how even some supposedly safer “investment grade” firms had now seen 20% wiped off their bonds. “We think it’s driven by global fund outflow….

As I mentioned before when the Evergrande story broke a weeks ago “there is never just one cockroach,” a theory that has proven correct with a host of other Chinese developers trying to find a way to avoid the unavoidable.

Adding to that uncertainty from the usual suspects like surging oil prices, ever increasing inflation, economic concerns with the impending third quarter earnings season on deck, and it came as no surprise that the markets shifted into retreat mode.

While at first rangebound, the US Dollar broke out to the upside and closed higher causing gold to pretty much tread water and go nowhere.

In the end, it seemed that traders and computer algos alike tried to grapple with these various events. As it turned out, at least for this session, the path of least resistance was to the downside.

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