While the US equity market appears to be buoyed by the second day run up in European stocks, I am looking at a big sell off in government bonds.

Yields on US treasuries — especially on the long end — are soaring this morning as China overnight attempted to strengthen the yuan by pulling currency from markets through short-term repo operations. Nearly 350 billion yuan have been yanked out of the Chinese markets in the last three weeks, which coincides perfectly with the run up to more than $1,000 in bitcoin pricing.

As I wrote late last year, 2017 will be fought in the forex markets, with currency devaluations and manipulations to keep the status quo as the dollar goes on a tear over the Trump election. It’s not only the yuan that is taking it on the chin versus the dollar, the euro is at 1.03 level and moving toward parity with the greenback.

The rotation, if that’s what is the driver, of bond sales going into stocks will be short-lived as we move into the month. A strong dollar with a hint of inflation will not bode well for US equities in the longer term, especially with the new administration coming in with a new agenda.

So stocks will open higher, but let’s see where they close after the initial enthusiasm has a chance to dissipate.