rob zdravevski's blog

Macro Extremes (week ending May 26, 2023)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities.

The following assets (on a weekly timeframe) either registered an Overbought or Oversold reading and/or have traded more than 2.5 standard deviations above or below its rolling mean.

Extremes “above” the Mean (at least 2.5 standard deviations)

U.S. 20 year government bond yields 

U.S. 5 year minus U.S. 5 year inflation break-even rate

Chilean equity index

Overbought (RSI > 70)

Russia’s MOEX index

Nasdaq 100

The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

British 2, 3, 5 & 10 year government bond yields

Australian 3 month bank bill yield (90 day swap rate)

U.S. 3 month government bond yield

Nikkei 225

Philadelphia Semiconductor Index

Extremes “below” the Mean (at least 2.5 standard deviations)

TLT (U.S. Treasury 20+ year bond ETF)

CSI 300 equity index

Copper

Soybeans

Oversold (RSI < 30)

LNG Japan Korea Marker (JKM)

Lithium Hydroxide 

Dutch TTF Gas

Rotterdame delivered Coal

KRE Regional Bank Inde

ZAR/USD

The Oversold Quinella – Both Oversold and Traded at < 2.5 standard deviations below the weekly mean)

None

Notes & Ideas:

Equity Indices mainly experiencedlower prices but they were eclipsed by the noisy gains in tech stocks and rebounding U.S. banks.

Beside the list of notable gainers and decliners below, the Dow Jones Industrials fell 1%, the MidCap 400 eased 0.5%, the SmallCap 600 and Russell 2000 eeked a 0.1% gain with the S&P 500 rising 0.3% for the week.

This past week, some equity markets did make a new ‘higher high’. Markets still have a propensity to ‘rip’ higher.

The Nasdaq 100 and the SOX both registered an overbought extremes for the first time since November 2021 while the Nikkei 225 last visited this area in March 2021.

The SOX Index has now risen 18% in the past 2 weeks, the U.S. Regional Bank Index has climbed 11% and the Nasdaq 100 firmed 7% over the same time whilst the S&P 500 is still hovering around the same price as January 2023.

For the week, the ASX 200 fell 1.7% and the ASX Small Caps fell 2.9%.

Government bond yields generally rose (except for Brazil and Türkiye) again and are trending higher. So, I ponder if they make a double or triple top. I’ll watch for ‘higher highs’.

The Australian 10 year minus 2 year bond yield spread is nearing an oversold reading. This week was its lowest close since October 2010. Preceding that, the same percentage was seen in September 2008. 

All the durations of British Gilts are overbought. 

The U.S. 3 month yield has seen its highest close “in this cycle” at 5.32%. 

The last time one could’ve earned near this interest rate was when it traded at 5.14% in February 2007.

Before that, it traded at 5.38% on January 1, 2001. Merely, 23 years ago.

Brazilian 10 year bond yields are nearing oversold territory but more relevant is that the yield has eased from 13.6% to 11.6% over the past 3 months.

Relevant because Brazil was amongst the first central banks to start their hawkish inflation strategy.  

Commodities were broadly weaker while oil and softs bucked the trend firming through the week. 

Coal, Urea, Gas and Shipping rates were amongst the notable decliners.

JKM LNG continues to close at its lowest point in 3 years and Australian Coking Coal finally mean reverted.

Dutch TTF Gas entered weekly oversold territory for the first time in 3 years.

Cocoa and Sugar are no longer overbought.

Nickel has now fallen 13% over the past 3 weeks and Silver has declined 10% over the same time. Whilst over the past 2 weeks, the Baltic Dry Index has tanked 26%, Dutch TTF Gas slumped 25% and JKM LNG has sunk 17%. Inversely, Orange Juice has climbed 20%.

Currencies 

The AUD lost 2% of its value against the USD and it was weak against everyone else including the Rupiah and Rupee.

Inversely, the USD saw strength. Recall those media reports (once again) about the death of the U.S. Dollar.

The Malaysian Ringgit is nearing an Oversold moment agains the USD.

The South African Rand closed at lowest historical price versus the USD and the AUD.

The Chinese Yuan is weaker as it nears an oversold reading.

The larger advancers over the past week comprised of;

WTI Crude 1.4%, Orange Juice 13.1%, Brent Crude 1.7%, Corn 8.9%, Oats 6.6%, Soybeans 2.3%, Wheat 2%, MOEX 2.1%, Nasdaq Composite 2.5%, SOX 10.7%, TAIEX 2%, KRE 2.8% and the Nasdaq 100 rose 3.6%.

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The group of decliners included;

Australian Coking Coal (2.1%), Aluminium (2.5%), Rotterdam Coal (16.6%), Baltic Dry Index (15.3%), Cocoa (2.5%), China Coal (4.3%), Iron Ore (2%), Lean Hogs (8.4%), JKM LNG (6.2%), Coffee (5.4%), Natural Gas (6.5%), Nickel (2.5%), Palladium (6.6%), Platinum (4.4%), Silver (2.9%), Cotton (3.9%), Dutch TTF Gas (17%), Urea U.S. Gulf (14.9%), Urea Middle East (9.7%), Lumber (2.9%), Shanghai (2.2%), CSI 300 (2.4%), CAC (2.3%), DAX (1.8%), MIB (2.9%), HSCEI (4%), Hang Seng (3.6%), Nasdaq Biotech’s (2.6%), TSX (2.1%), KLSE (1.8%) and the FTSE 100 fell (1.7%).

May 28, 2023

by Rob Zdravevski

rob@karriasset.com.au 

Energy correlations & buying moments

Followers would recall my notes about peaks and mean reversion calls in various assets including energy.

I’ve been bearish on energy prices soon after the Russian/Ukraine war commenced.

Middle East Urea prices have mean reverted, falling from $900 to $290.

The Japan/Korea Market (JKM) LNG price has tanked from $68 to $9.

Now, I am preparing to buy and am becoming bullish on energy prices again.

The first chart attached chart shows the correlation between Urea and JKM LNG.

These correlations extends across many other commodities, stock prices and currencies. 

The next chart is the Rotterdam Coal price compared to the JKM LNG price.

Lows in selected energy prices are likely be “put” in before the majority realise it.

Other energy prices such as Heating Oil, Crude and Distillates still have some lower travel before they bottom.

The 3rd chart in this series perversely compares the Dutch TTF Gas price to that of Wheat.

Remember when the financial media were reporting about these energy prices in recent months, after they had already tripled and on their way to peaking?

May 28, 2023

by Rob Zdravevski

rob@kariasset.com.au

S&P 500 – constructive but trend less

Amidst a trend less equities market, the good news is the S&P 500 is acting and trading constructively.

The low seen in March 2023 did not break the low seen in December 2022.

This past week, it made a recent ‘higher high’, when it traded at 4,213, which is above the 4,195 high seen in late January 2023.

In the interim, there is a ‘daily’ gap at 3,980 which I expect the S&P 500 to trade down to and ‘fill’.

That’s 3.3% below today’s closing price of 4,115.

The next ‘higher high’ that it needs to test is the August ’22 high of 4,325.

Although, this remains a market which I am ‘dating’ and not one that I’m ‘marrying’.

My notable, medium to longer term buying signals are nowhere to be seen.

May 25, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending May 19, 2023)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities.

The following assets (on a weekly timeframe) registered an Overbought or Oversold reading and/or have traded more than 2.5 standard deviations above or below its rolling mean.

Extremes “above” the Mean (at least 2.5 standard deviations)

British 10 year government bond yields

Overbought (RSI > 70)

Australian 3 month bank bill yield (90 day swap rate)

U.S. 3 month government bond yield

Cocoa

The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

Nikkei 225

Extremes “below” the Mean (at least 2.5 standard deviations)

China 10 year government bond yields 

Copper

Oversold (RSI < 30)

JKM LNG Gas

Lithium Hydroxide 

KRE Regional Bank Index

ZAR/USD

The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

Corn

Soybeans

Notes & Ideas:

Equities showed life following weeks of sideways travel. The moves can’t be described nor confirmed as a new trend or the ‘rip’ higher, the latter being something I have written to clients about recently.

While it’s worthy to note many equities markets are yet make any type of ‘higher high’.

The KBW Bank index rose 6% for the week, more than reversing last weeks 3.5% decline and it’s no longer oversold.

While last weeks bearish outside reversal seen in South Korea and Taiwan didn’t materialise into weakness.

For the week, the ASX 200 rose 0.3% and the ASX Small Caps fell 0.9%.

Government bond yields generally rose, except for Türkiye’s.

In this weeks list, the British 10’s entered an overbought territory while the other 2, 3 and 5 year durations are nearly doing the same.

And the U.S. 5 year bond yield minus U.S. 3 month bond yield isn’t oversold this week.

Commodities were broadly higher with energy generally faring well while the ‘softs’ (agriculturals) suffered the largest declines along with Tin and Nickel.

Sugar is no longer overbought nor is Gold as it is priced in AUD.

Australian Coking Coal is closing in on its 200 week moving average.

JKM LNG continues to close at its lowest point in 3 years and Heating Oil broke its 7 week losing streak.

Currencies 

We saw the AUD mixed, the EUR slightly weaker while the USD broadly firmed.

The USD/JPY is edging towards an overbought extreme.

The larger advancers over the past week comprised of;

Cocoa 2.8%, Aluminium 2.8%, WTI Crude 2.4%, Iron Ore 3.3%, Gasoil 3%, Heating Oil 2.5%, Coffee 5%, Lithium 3.7%, Natural Gas 14.1%, Orange Juice 6.4%, Gasoline 6%, CRB Index 1.6%, Cotton 7.7%, Brent Crude 2.2%, AEX 1.9%, KBW Bank Index 5.8%, DAX 2.3%, BOVESPA 2.1%, Nasdaq Composite 3%, KOSPI 2.5%, Nasdaq 100 3.5%, Nikkei 4.8%, Stockholm 2.3%, Russell 2000 2%, S&P Small Cap 600 2.4%, SOX 7.8%, S&P 1.7%, TAIEX 4.3% and the KRE Regional Bank Index soared 7.8%.

The group of decliners included;

Baltic Dry Index (11.2%), JKM LNG (11.5%), Tin (5.2%), Nickel (4.3%), Sugar (1.7%), Dutch TTF (7.9%), Gold in AUD (1.8%), Gold in CAD (2%), Corn (5.4%), Oats (3.9%), Rice (7.7%), Soybeans (6%), Wheat (4.7%), Lumber (1.8%) and Thailand’s SET Index fell 3%.

May 21, 2023

by Rob Zdravevski

rob@karriasset.com.au