The publication of a surprisingly strong US CPI (+0.5% in January (from +0.2% in December), “beating” all expectations) coupled to a much weaker than expected US retail sales report proved a toxic blend worth a 50 (!) points gap down ahead of the s&p500 opening. This dip was somehow immediately bought and in absence of a reversal and follow through selling, the only possible path was to further recover and grind higher from there, a pattern which lasted throughout the entire session, allowing major indices to close 1.2% higher and at the highs of the day. Bonds also sold off 11bps on us 10 y treasuries on the ‘staglationary’ news cocktail of the day... but, as opposed to stocks, bonds stayed lower. As we suspected in our lines yesterday, short of a relapse in stocks, the path of least resistance for the dollar was also down (it fell across the board today ie vs. both DM and EM currencies) and the winners of the day were, in all logic, precious metals with gold and silver gaining respectively +1.2% and 1.4%, outperforming stocks slightly and responding to dollar weakness this time. This is how 1987 looked like apparently with the dollar and bonds down and stocks rallying in the first half. Commodities stormed back higher as well as the inflationary news struck. Cryptos rallied with bitcoins up 8.5% yesterday alone. Cryptos outperformed in the crash last week and in the recovery this week, a clear demonstration that animal spirits are back in the space. We still believe that before year end, reality will have struck there again, indlicting more pain to the thousands of newcomers and freshly converted who will have seen the dip of January as a buying opportunity, sending the space much lower than the lows of January. Our impression from Yesterday’s “general” price action is also one of still disorderly gyrations and troubles lying ahead, despite the appearance of further healing in stocks. It is increasingly clear to us (and we are not taking our cues from today’s cpi which is highly distorted and subject to revisions), as it has been for a while, that inflation is going to surprise on the upside and that the policy response will stop short of current expectations of tightening. We see two distinct risks looming on the horizon; a bond and a dollar crisis with the stock market caught in between and gold standing as the big winner and ultimate safe haven. 

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