Macro Extremes (week ending February 11, 2022)

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)

U.S. 10 year government bond yields

KBW Banking Index

Cocoa 

Copper

Rice

Palladium

Overbought (RSI > 70)

Australian 2, 3 and 5 year bond yields

Russian and New Zealand 10 year government bond yields

CRB Index

Bloomberg Commodity Index

Australian Coal

Aluminium

Tin

Heating Oil

Brent Crude

WTI Crude

Gasoil

Gasoline

Cattle, Cotton and Coffee

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

Australian 10 year government bond yields

U.S. 2 and 5 year government bond yields

German 2, 5 and 10 year government bond yields

Spanish, French, Greek, Italian, U.K. Japan, Korean, Swedish and Portuguese 10 year government bond yields

Soybeans

And Singapore’s Strait Times 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)

Shanghai Composite

CSI 300

South Korea’s KOSPI

ASX 200

Oversold (RSI < 30)

U.S. 10 year minus 2 year government bond yield spread

Hot Rolled Coil Steel (HRC)

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

None

Notes & Ideas:

The big news is the careering of short duration bond yields into the stratosphere. Government 2 and 3 year bonds are now where 10 year bonds were yielding only 5 months (October 2021) ago.

Subjectively, this tells me rate rises are being factored into and the longer bond yields are a better indicator than the distorted short end.

Watch for retracements following parabolic price moves.

Equities were mostly higher global for the week, with the exception of major U.S. indices. Asian equity markets caught a bid (whilst remaining unloved), Korea’s KOSPI is bouncing off an Oversold position while the U.K.’s FTSE 100 is approaching Overbought territory.

In other ‘big news’, the price of shipping soared 39% for the week.

The pullbacks and predictions of a low appear here;

and

I also think the price of Shipping and Oil will converge, as written here,

It’s no surprise to see lower Gasoline and Gas related prices lower, while recent extremes in currencies have abated.

In other tidbits of interest, the SOX is trading at the same price as last June (2021), WTI Crude, albeit squeezes out a 8th consecutive ‘up’ week, although it only rose 0.9% for the week amidst Russian/Ukraine tensions and Bitcoin can’t close above $44,000 on a weekly basis.

Continuing from last week, he CRB remains Overbought, German 10 year bond yields are above Zero, a bunch of bonds yields (as per last week’s ‘Extremes’) are at multi-year highs, 

Inversely, not many think yields or commodity prices can retrace or abate…

Reiterating at week’s comment, the U.S. yield curve has flattened and is now at its lowest since March 2020. This is a reasonably positive signal for equities, which I highlighted in this article, dated July 8, 2021.

And from the books of Pattern Recognition….

And I’m also repeating that 1 barrel of Oil is now buying the least amount of ounces of Gold (the Oil/Gold Ratio is $19.80) not seen since April 2019.

In fact, the Oil/Gold ratio is now back to $19.80, a level not seen since April 22, 2019.

Incidentally, that date also signalled the high in WTI Crude Oil and was followed by a 23% decline over the next 6 weeks. That peak was not re-broken until March 2021.

Equally, Copper put in a high of $3.00 that week, to then dropped 33% over the next 11 months.

That peak of $3.00 was not re-broken until the week of August 3, 2020

Spookily, that decline in Copper from its April 2019 levels, started from a lower low which was 9% below the previous high which was set 11 months earlier.

Today, Copper is 9% below a higher high, which was set 11 months earlier.

Inversely, Gold found a floor that same week and commenced a notable rally from $1,200 and peaked at $2,075 in the week of August 3rd, 2020.

So your trade positioning is exiting your overpriced Oil and Copper exposures (this will aide my Short Commodities and CRB call) and accumulate Long’s in Gold and perhaps other precious metals.

And we’ll watch the AUDJPY whether it makes a higher high or a lower low.

The larger advancers over the past week comprised of; 

Aluminium 5.4%, Rotterdam Coal 3.6%, Baltic Dry Index 39%, China Coal 11.4%, Cocoa 5.4%, Gold futures 1.9%, Gold in AUD 2%, Gold in USD 2.8%, Gold in EUR 3.8%, Hogs 4%, Coffee 4.2%, Lumber 13.7%, Gasoline 2.2%, Silver 4%, Brent Crude 2.4%, Corn 4.9%, Oats 2.6%, Soybeans 1.9%, Wheat 4.5%, Shanghai 3%, AEX 1.9%, DAX 2.2%, IBEX 2.4%, FTSE 100 1.9%, HSCEI 2.3%, TAEIX 3.3%, Russia’s MOEX 4.2%, Straits Times 2.9% (rising 5.5% in 2 weeks) and Istanbul 4.6%.

The group of decliners included ;

Gasoil (2.9%), JKM (3.1%), LNG (11%), Natural Gas (13.8%), Palladium (4.2%) down 8% in 2 weeks, Dutch TTF Gas (6.3%) down 17% in 2 weeks), Urea (11.7%), Nasdaq (3%), Philadelphia Semiconductor Index ‘SOX’ (2.5%) and the S&P 500 fell 1.8%.

February 13, 2022

by Rob Zdravevski

rob@karriasset.com.au

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