Macro Extremes (week ending March 25, 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)

Australian 3, 5 & 10 year government bond yields

New Zealand, Swedish, Turkish & Canadian 10 year government bond yields

Gold (in USD and AUD)

AUD/USD

Oslo equity index

TBT & TBX (U.S. listed “Short” bond ETF’s), confirming the inverse reading of the overbought U.S. bond yields listed in the next category.

Overbought (RSI > 70)

Australian and U.S. 2 year government bond yields

German 5 & 10 year government bond yields

Greek, Spanish, French, Italian, Portuguese & Korean 10 year government bond yields

Australian Coal

CRB Index

Bloomberg Commodity Index

Nickel

WTI Crude Oil

Brent Crude 

Gasoline

Cotton

Corn

Soybeans

Uranium

AUD/GBP



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

U.S. 5 and 10 year government bond yields

Gasoil

Heating Oil

AUD/EUR

AUD/JPY

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)

SGD/AUD

INR/AUD



Oversold (RSI < 30)

U.S. 10 year minus 2 year government bond yield spread (lowest since March 2020)

U.S. 10 year minus 5 year government bond yield spread (which has now inverting and at lowest since January 2007.

CSI 300 equity index

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

JPY/USD



Notes & Ideas:

The big news in this week’s edition is the extreme high in the U.S. 10 year bond yield, which closed the week at 2.48%.

I’ll give it up to 2.66% but we’re at the upper end of the range for now.

The second largest piece of news, is that lack of news as we have seen the mildest and most benign moves in equity markets for many weeks. A host of indices barely changed week on week.

For example, the S&P 400 Midcap was up 0.3% on the week, while the Russell 2000 fell 0.4%.

Perhaps this is symbiotic of the VIX index which has fallen to 20 (see the chart below)

We also continued to see many ‘heady’ commodities ease from their recent overbought readings they work on testing support lines and ponder whether they change trend direction. 

Keep in mind that creating a meaningful new trend takes more than a sudden jolt, instead it often requires prices to go through a consolidating and digestion process of the previous trend.

I’m seeing the AUD and USD at 6 year highs against the Japanese Yen;

The Shanghai equity index is nearing an oversold reading,

I think the S&P 500 may touch an interim top of 4,549.80

And last week, I mentioned Nasdaq’s bullish outside reversal week as it rose 2.3% this week.

The larger advancers over the past week comprised of; 

Aluminium 6.9%, China Coal 11.4%, WTI Crude 10.5%, Gasoil 12.3%, Gold 1.9%, GVZ 12.2%, Hogs 8.1%, Heating Oil 14.4%, Natural Gas 14.6%, Nickel 9.2%, Orange Juice 2.2%, Gasoline 7.1%, Sugar 3.6%, Silver 2.1%, CRB 5.2%, Cotton 7.1%, Brent Crude 10.6%, Uranium 3.7%, Oats 6.2%, Rice 4%, Soybeans 2.5%, Wheat 3.6%, AUDJPY 3.9%, Bovespa 3.7%, Nasdaq 2.3%, Nikkei 4.9%, Oslo 2.7%, SOX 2.7%, S&P 500 1.8%, STI 2.5%, Istanbul 2% and the ASX 200 rose 1.5%.

The group of decliners included;

Baltic Dry Index (2.3%), Australian Coal (5.6%), Rotterdam Coal (-16% adding to last week’s 11% fall), JKM (3%), Lumber (15%), Palladium (4%), Platinum (2.7%), Dutch TTF Gas (3.6%), Copenhagen (4.5%), Helsinki (2.7%) and Stockholm (3.3%).

March 27, 2022

by Rob Zdravevski

rob@karriasset.com.au