Macro Extremes (week ending October 8, 2021)

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

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

USD/JPY (telling us of a strong USD and a weaker Yen)

It’s the weakest since early 2019.

So sell USD and Buy JPY and use it to buy cheap Japanese equities.

Overbought (RSI > 70)

Hot Rolled Coil Steel (for the 54th consecutive week)

Aluminium

Australian coal

and India’s Sensex & NIFTY 50 equity indices



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

U.K. 10 year government bond yields (Gilts)

U.S. 2 year and 5 year govn’t bond yields 

Korean 10’s

The Bloomberg Commodity Index

The CRB Index

The Baltic Dry Index

WTI and Brent Crude

Gasoil

Heating Oil

Natural Gas

the JKM “Japan/Korea (LNG) Marker”

Coal, Rotterdam delivery (it was up 22% early in the week)

Russia’s MOEX equity index



Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

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

South Korea’s KOSPI equity index

EUR/GBP – telling us the Euro is weaker and we have a strong British Pound, so sell your GBP and Buy EUR (there are some bargains amongst European equities) 



Oversold (RSI < 30)

None



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

None



Notes & Ideas:

Most of the price action continues in the bond market (with some markets seeing yields hitting some extremes) while many commodities continue to post weekly moves of greater than 2% over this past week.

In the past weeks bond yields have been rising.

Over the past 8 weeks, Australian 10’s have risen from 1.07% to 1.67%. This week alone, they’ve risen from 1.49%.

U.S. 10’s moved from 1.13% to 1.62%. In the past week, they stretched from 1.47%.

French 10 years from -0.15% to + 0.12%.

U.K. 10’s have doubled from 0.52% to 1.15%. We’ve seen them extend from last weeks 1.06%.

While over the past week alone, Korean 10’s moved from 2.26% to 2.38%. Canada’s equivalent went from 1.47% to 1.63% and German Bunds rose from a negative 0.23% to (0.15%).

My call for a peak and an interim ‘head-fake’ in rising yields stands. Interest Rates will rise but for now the surge needs a break. Furthermore, the U.S. 10 year minus 2 year yield ‘spread’ has hit a resisting trendline.

The larger advancers over the past week comprised of Baltic Dry Index (shipping) 6.2% (adding to last week’s 12% rise), WTI & Brent Crude 4.3%, Gasoil 6.4%, Copper 2%, Heating Oil 3.8%, JKM 3% (peaked at +12%), Cattle 4.3%, Lumber 15% (I’ll remind readers of my bottom call), Platinum 5.6%, Gasoline 5.1%, CRB Index 2.2%, Australian Coal 3.2%, KBW Banking Index 2.3%, MOEX 4.3%, Nifty 50 & Sensex 2.2%, Singapore’s Strait Times 2%, Dow Jones Transports 2.7%, Nasdaq Transports 1.8% & Australia’s ASX 200 1.9%.

The group of decliners included Lean Hogs (2.2%), Hot Rolled Coil Steel (2%), Orange Juice (3.9%), Corn (2%), Wheat (2.8%), Dutch (Euro) Gas (6.4%) peaked at +45% during the week, KOSPI (2.1%) and Nickel fell 2.5%.

In last week’s edition I wrote……..and I remind readers;

A rise in the U.S. Dollar has generally resulted in weaker commodity prices. Gold in AUD continues to hold a A$2,312 support level.

But I continue to watch and think that recent rise in interest rates will be a head-fake and lead to a reversal lower. The next resistance in U.S. 10’s is 1.62%. 

Higher U.S. interest rates means a rising AUD. If 10’s hit resistance and reverse lower, the lower AUD and weaker commodities trade is back on.

In other notes, the FTSE 100 (7,096) is closer to a breakout and is Italy’s MIB Index (26,051), with my bet being for lower prices.



October 10, 2021

by Rob Zdravevski

rob@karriasset.com.au