The bond sell-off continued with a vengeance yesterday, underpinned by a weak French 30-year bond auction, comments by the Banque de France’s Villeroy and ECB Minutes which indicated the Bank was closer to removing its easing bias on its Asset Purchase Program (APP) than many first thought. In terms of market moves, most action happened in bonds: German Bund yields (+9.2bps to 0.56%); French OATs (+10.1 to 0.92%) and US Treasury yields (+4.2bps to 2.37%). With yields moving higher in Europe, the Euro outperformed (+0.6%), while equities were lower across the board (EuroStoxx50 -0.5%; S&P500 -0.9%).

To mark my 1375th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.

For anyone following my Platinum Service it made 96 points yesterday and is now ahead by 283 points for July, having made 1023 points in June, 1071 in May, 1376 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.

How did the sell-off begin? The French 30-year bond auction was weaker than expected with a lower bid-to-cover of 1.53 times compared to 1.93 times for the previous auction. The clear implication here is that buyers have less appetite for European debt as they expect yields to head higher and for the ECB to gradually remove policy accommodation in the near future. That sentiment was reinforced by Banque de France’s Villeroy who in his first annual letter to the French President said non-standard monetary policy is “neither eternal nor omnipotent” and that nominal rates are set to rise in line with the economic recovery.

The ECB Minutes reinforced the notion that the ECB was set to announce a taper of its APP in the near future with a discussion held on whether they should “revisiting the easing bias with respect to the APP purchases” given vanishing tail risks but in the end they didn’t out of fear that “even small and incremental changes in the communication could be misperceived” and that could lead to a tightening in financial conditions. Importantly, they said “as the economic expansion proceeded and if confidence in the inflation outlook improved further, the case for retaining this bias could be viewed”. It seems it is only a matter of time for further ECB communication that would guide the market towards the expectation of a gradual removal of policy accommodation – in this light, Draghi’s speech last week was likely a pointer in this direction.

In FX, the Euro was the clear outperformer, closing up 0.6%. The UK Pound also gained, up 0.3% with the Bank of England’s McCafferty (dissenter) fuelling expectations that policy accommodation could be removed in the near future: “If the economy evolves along the lines of the forecast that we put out in May we would expect to see a couple of modest rate rises at some stage over the next couple of years or so.” On whether this would occur in the next few months: “I will make my decision about that at the next meeting on the basis of the data that by then will be available … we’re all watching the data and will see how it goes.”

Movements in other major currency pairs were more muted: Aussie (-0.2%), Kiwi (-0.2%), CAD (-0.2%) and Yen (+0.1%).

Oil prices were slightly higher (WTI +0.4%; Brent +0.3%), but remain volatile after Wednesday’s large sell-off. A fall in US stockpiles helped the oil price recover after yesterday’s sharp intraday fall.

While there was plenty of US data out, this did not have an enduring impact on the market. ADP Payrolls were weaker than expected, but the Non-manufacturing ISM was stronger than expected; other data out included the Trade Balance and Jobless claims. As for ADP Payrolls, they were 158k against expectations of 188k. While that could signal downside risks for this afternoon’s Non-Farm Payrolls, it has performed poorly recently while other indicators of the labour market remain strong. One such indicator is the Non-manufacturing ISM which rose to 57.5 from 56.9 and above the consensus of 56.5. Strength in the month was driven by New Orders (+2.8 points) and Inventories (+3.5 points). Importantly the Employment Index remained at high levels, though it did dip to 55.8 from 57.8. Superficially that still signals a GDP growth rate of +3% and continued payrolls growth.

This morning on the Economic Front we have UK Industrial/Manufacturing Production, Construction Output, Trade Balance and the NIESR GDP Estimate all to be released at 9.30 am. This is followed at 1.30 pm by the US NFP data and Average Earnings. . The market is currently expecting payrolls growth of 178k, up from last month’s 138k pace, and an unchanged Unemployment Rate at 4.3%. The Atlanta Fed’s jobs calculator suggests only 118k jobs a month are needed to keep the Unemployment rate unchanged so anything above this will be probably enough for the Fed. Also under focus will be the wages component which has so far failed to lift significantly despite the Unemployment rate falling over the past 6-months from 4.7% to 4.3%. This month consensus looks for a 0.3% m/m rise which would take the y/y figure to 2.6%. Finally at 4.00 pm the Fed publishes its July 2017 Monetary Policy Report to Congress.

September S&P 500

The S&P has had traded a wide range over the past 48 hours as the Dow finally caught up with some negative price action. This is reflected in the McClellan Oscillator which closed with a positive 48 print on Tuesday only to get hit hard yesterday as shown by last night’s -97 closing price. On Tuesday after I posted the S&P just missed my 2434 sell level despite a couple of strong intra-day rallies before finally hitting my 2414 buy level yesterday afternoon. Thankfully from this price level the S&P rallied to my 2421 T/P level and I am now flat. As usual I will stay flat until we get the NFP release at 1.30 pm where again the Average Earnings Component is key. The S&P closed weak last night as we approach last week’s 2402.25 low print and today I will again look to buy the S&P on any dip lower to 2394/2401 with a 2389 stop. I will also lower my sell level slightly to 2420/2426 with a 2432 stop which is just above Tuesday’s high print.

EUR/USD

Despite the Daily Sentiment Index reading at 4 year highs the Euro rallied strongly as the continued aggressive sell-off in European Bond Yields put a strong bid for the Euro. As a result the Euro traded higher to my 1.1415 sell level. I would like to be flat the Euro ahead of the NFP release and I have now cut this position here for a breakeven and I am now flat. Subsequently if the Euro rallies following the NFP release I will again look to sell the market from 1.1465/1.1505 with a 1.1535 tight stop. Despite the positive price action yesterday my only interest in buying the Euro is on a dip lower to 1.1310/1.1345 with a 1.1275 stop.

September Dollar Index

It took a while but finally the Dollar traded lower to my 95.60 buy level before rallying small this morning. As I am already short the Euro, I emailed my Platinum Members to exit this position at my revised 95.72 T/P level and I am now flat. The Dollar is extremely oversold and has major support at 95.00 on top of an extremely low DSI reading. For these reasons I will again look to buy the Dollar on any dip lower to 94.95/95.35 with a 94.65 tight stop.

September DAX

My DAX plan also worked well with the market trading lower to my 12325 buy level with a 12303 low print. This low was exactly the same as last Friday before the market rallied nearly 200 points. After the DAX hit my buy level the market rallied to my 12365 T/P level and I am now flat. Given the strength of the Euro I am surprised that the DAX is not weaker. However a break and close below 12300 will be bearish and could well see a quick move lower to 12150/12200. Today I will now only look to buy the DAX on any move lower to 12190/12250 with a 12145 tight stop. Despite my bearish concerns I do not want to be short the DAX at this time.

September FTSE

Unfortunately the FTSE just missed my 7345 sell level before the market sold off and I am still flat. Today I will now lower my sell level to 7310/7345 with a 7375 stop. I will also lower my buy level to 7175/7205 with a 7140 wider stop. This 7170/7200 is huge support for the FTSE and I would expect the FTSE to have a decent initial rally on any test.

Dow Rolling Contract

My Dow plan also worked well with the market trading lower to my 21350 buy level yesterday afternoon before thankfully rallying to my 21410 T/P level with a 21416 rebound high and I am now flat. As I have mentioned over the past week the Dow needs to break and close below its 21169 March 1, previous all-time high for me to turn more long-term bearish. The S&P is near its equivalent March 1, high at 2401. Today I will again look to buy the Dow on any dip lower to 21160/21220 with a 21115 tight stop. Despite yesterday’s sell-off I do not want to be short the Dow at this time.

September BUND

Unfortunately my Bund plan did not work well as the Bund sold off aggressively all day yesterday. After the market hit my 161.20 average buy level we saw no real recovery as the market continued to stair step lower and eventually hit my 160.70 stop loss level and I am now flat. The sell-off in the Bund is continuing as I finish my commentary with the market current trading at 160.45. Incredibly Bund Yields have now trebled in just over a week since Dragi’s speech in Portugal. I know we are coming off a low base but to see Bond Yields move by this amount in such a short period is frightening. A lot of Pension and Hedge Funds must be sitting on sizeable loses at this stage. The Bund has strong support from 159.80/160.20 and is severely oversold. As a result I will now be a buyer in this area with a 159.50 tight stop.

Gold Rolling Contract

On Tuesday after I posted Gold traded lower but frustratingly missed my 1216 buy level with a 1216.90 low print before rallying strongly. However the weakness in Silver is spilling over to Gold and today I will now lower my buy level slightly to 1205/1212 with an 1199 stop. Remember a break and close below 1210 this evening could well see the market accelerate lower next week.

Silver Rolling Contract

Much to my frustrating and cost, I was stopped out of my latest 16.16 position overnight at 15.80 and I am now flat. On Wednesday the DSI reading for Silver was just 10% and if Silver stays where we are this evening this reading should be in single figures. I am tempted to re-buy my Silver position but instead I will wait to see if the market dips lower to 15.15/15.50 with a 14.85 stop.