Macro Extremes (a weekly basis) – February 27, 2021

At some time during this week, the only asset in my immediate universe which was either Oversold (where the RSI is < 30) and or trading at least 2.5 standard deviations below its mean was…..

Gold (priced in USD and AUD).

note: Gold in CAD and EUR haven’t reached this point yet.

The material change from last week’s list is that the Oversold currencies have bounced and risen.

Everything else in my list below is in the “Overbought” territory


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

Live Cattle

AUD/JPY (touched the extreme during the week, before reversing)

USD/JPY (The Yen is weak relative to the U.S. Dollar)

German 5 and 10 year bond yields

Spanish 10 year bond yields

(note: equity indices still not making this Overbought list, i.e. equities indices are not at extremes)

Overbought (RSI > 70)

Korean 10 year bond yields (at 2%, bond buyers should become interested)

WTI Oil (oil crisis aside, be careful if you’re a new buyer here, you may be marginalised)

Brent Crude Oil (not stretched on the standard deviations yet, but quite full)

Bloomberg Commodity Index

CRB Index (we’ve already seen an impressive 6 month commodity rally)

Heating Oil

Copper

Lean Hogs

Tin

Iron Ore

Bitcoin (FYI weekly mean is US$28,000)

U.S. KBW Banking Index (mid cap, regional banks have been on a tear)

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

Copper

Lean Hogs (2nd week in a row)

Tin (2nd consecutive week)

The Copper/Gold ratio

U.S. 5 and 10 year bond yields

Australian 5 and 10 year bond yields

and Swedish, New Zealand, Japanese, Italian, United Kingdom, French & Canadian 10 year bond yields

The big news in market extremes was the brewing, frothing bond yields. It was a continuation of the great bond sell-off.

Bonds were sold heavily and inversely, yields were rising.

In other words, buyers of bonds over the past 5 months, thinking that rates will stay low for a longer period and they are a safe harbour for their money, started to lose money on their capital. Bonds, thus aren’t the safe harbour they thought, so then there’s a rush for the exits as the sliding doors are closing quicker than they wold like.

The question is, where did this bond money go? It can stay in cash, move to other durations and issuers. It doesn’t automatically means that it moves to equities.

p.s. major equity indices declined between 2%-4% for the week.

Today. we have monumental extremes in advancing bond yields. I’ll paraphrase it as a trap.

The spread between the 2 year and 10 year bond yield touched 1.37%, something not seen since December 13, 2016 and again December 3, 2015. (it’s worth seeing how equities reacted back then)

The most overcrowded trade in the market today is believing that bond yields will rise.

Caveat Emptor !

Incidentally, an uncrowded trade is to be Long Gold.

Lastly, registrants of last week’s extreme readings above means and being Overbought, have since seen the following declines as shown in parentheses.

Sugar (7.5%), Platinum (8.4%), Natural Gas (9.7%) and Bitcoin (16.7%)

February 27, 2021

by Rob Zdravevski

rob@karriasset.com.au

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