Many experienced traders view global markets as an interconnected web - if there is a pull on one strand (or market), it has effects on others. There are many examples of moves in one market informing another -
many share traders look at oil and copper to gauge industrial production sentiment. The focus shifts over time, but the principle remains.
At the moment, bond markets are a indicator. Fears of capital loss have driven "safe haven" bond markets around the globe to sixty year highs. While not every dollar flows from shares to bonds and vice versa, there is an inverse relationship between them. And German bond markets are warning of a change.
Here's the German ten year "bund". The daily chart from our Tracker platform shows the price of the bond, not the yield (interest rate).
The high point on the chart on June 1 represents a yield of 1.17 % - since that date, the yield has risen to 1.48 %, driving the price down.
There is a clear trend break here, with potential for the price tro move back into the 137 - 140 zone. (That's right, a German 10 year bond that has a face value of 100 Euro currently costs more than 142 Euro!).
The implications for global markets are arguable. If there is a general move out of safe haven bonds, risk currencies and shares are very likely to rise. However, it is possible the trend break here is indicating a change in the safety levels of particularly German bonds. Unfortunately, the US picture is more ambiguous:
The very jagged trend here makes drawing the trendline an exercise in art rather than science, introducing uncertainty. If the selling in US bonds (interest rates up) continues, we will have a clear global signal.
In the meantime, I intend to keep it simple, and sell German bunds. A trade through Wednesday's low would have me looking at the following trade:
SELL 5,000 units Euro Bund at 142.90, stop loss 143.30, target below 140.10