Bond Futures - implications for equity sentiment.

This week has seen some decent price action across markets, with Equities posting strong gains, and Bond markets seeing strong some corrective forces following huge gains in recent weeks. With US employment data and ISM non-manufacturing later today, markets could still see some whipiness (not sure if that is a real word) today, before it all calms down so the US can enjoy their Labour day weekend. However, the strong moves lower this week in bond markets, are worth looking at further, since this may have implications for equities moving forward.


Bund Futures

With regards to the Bond markets, yesterday I touched on the subject of Japanese 10 Year yields, these have seen further correction overnight, to the degree that Japanese 10 Year yields (JGBs) are now at 1.15%, having touched 0.90% last week. Other 10 year yield markets have also seen sharp turns higher, US (T-notes) and German (Bunds) 10 year yields are around 20bp higher than their lows of last week. A few weeks back I did an analysis of the Bund future (can be seen here), I expected a strong rally at the time, however the sharpness of this rally, with no real pullback did surprise me, however I feel it has also left the Bund vulnerable to a sharp correction, (which is occurring, and may possibly go further). -I will highlight my thinking with regard to this by showing the Symmetrical Triangle Pattern on the recent Weekly Continuation Bund (Top Chart) together with 2 the prior examples of this which I had previously used  (See lower charts). In both prior examples, the Bund rallied strongly following the break out from the Symmetrical Triangle, achieving a rally roughly equal in magnitude and duration to the rally which preceded the triangle. Once that post triangle breakout rally had been achieved and completed the Bund fell back almost to the breakout level of the triangle. Now as I always like to point out, it is dangerous to infer that a similar situation will occur just because 2 prior examples formed in a same way, however it useful to be aware of the comparisons, particularly because so far they have unfolded with very similar characteristics to the current set-up. - Note, in both prior cases, this pullback turned out to be a correction, not a turn in the trend, I would suggest that if this occurs, this would probably turn-out to be along the same lines. 

How does this spillover to Equities?

The past few weeks of Bond markets rallying proved to be a tough environment for equities. It may however  be the case that the recent move in equities, which has already corrected sharply this past few days, continues to correct to better levels, if the Bond markets continue to move lower. - My main there this week has been the abating of risk. Today's data could see a set back on that, or it could continue because or in spite of this.

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Finally - something for the weekend. -- This week there was an article on the BBC website about how French Physicists had found out how Roberto Carlos's famous 1997 goal for Brazil v France, sometimes called 'The impossible goal', was actually possible ---  (I guess that with the Large Hadron Collider down for much of last year, they had to find something else to keep them occupied). That article can be seen here for those interested. To be honest the physics in the article went straight over my head, however the goal is definitely worth seeing again, so here it is:  - (Watch the replays to really appreciate its magnificence).





Class...and just to prove that it was not a fluke, here is another one of his many impossible goals.