Macro Extremes (week ending April 15, 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. Dollar Index (DXY)

Overbought (RSI > 70)

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

Greek, Spanish, French, Italian, British, Swedish, Portuguese, New Zealand, Swiss, Canadian & Korean 10 year government bond yields

German 5 and 10 year yields

U.S. 2, 5 & 10 year yields

Bloomberg Commodity & CRB Index

Cotton

Uranium 

Corn

AUD/JPY

TBX

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

TBT

U.S. 10 year minus German 10 year bond yield spread

China Coal

Natural Gas

Orange Juice

Istanbul’s BIST equity index

USD/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)

None



Oversold (RSI < 30)

TLT

IEF

China’s CSI 300

JPY/AUD

HKD/USD

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

JPY/USD



Notes & Ideas:

The big news for the week remains in the bond market.

Major government 10 year bond yields are overbought. The oversold levels of the Bond ETF’s are helpful tools to use to confirm this overbought bond yield status.

Such overbought levels in the U.S. 10 year are notable that it has never been so, in the 40 years of data appearing in the chart below. It’s so meaningful, that the chart below is a Monthly chart and not my normal series of Weekly charts.  

The inverted U.S. yield curve inverted I son longer news. As I wrote last week, “Much noise (once again) for not much substance. Curves needs to invert more than a few days before probability stacks up for a future recession call.”

Last week, I also cited a bullish outside reversal in the yield curves.

Pundits are commenting that the Stockmarket doesn’t seem to care about the rising yields which implies danger, as the bond market is something we tend to respect more than equities.

In a future post, I’ll discuss the reason for this, where I’ll illustrate real yields being more relevant than nominal yields, especially when compared to the earnings yield of equities.

Furthermore, this post, talks about my take on the yield curve 

https://robzdravevski.com/2022/04/14/being-ahead-of-the-curve/

Other persistent news is the Oversold Japanese Yen.

Speaking of currencies, I’m watching if EUR, GBP, KRW and host of others, make lower lows.

Currently, they are not, whilst the DXY is making higher highs. 

It’s telling me that U.S. Dollar strength is not uniform across the crosses.

To round off the past weeks prominent news, energy prices resumed their climb with coal been the standout. 

Aussie coal prices rallied 15%, cutting in half the 37% decline seen in the previous 3 weeks.

Aluminium has fallen 8% in the past 2 weeks while Bitcoin and Ethereum both fell 4%, adding to last week’s 8% decline.

And following 2 week winning streaks add up to, 11% for Corn and Wheat, 14% for Orange Juice and 26% for Natural Gas.

The larger advancers over the past week comprised of; 

Australian Coal 15.1%, Rotterdam Coal 9.3%, Gasoil 10.3%, Bloomberg Commodity Index 4.8%, Baltic Dry Index 4%, China Coal 23.2%, WTI Crude Oil 8.8%, Lean Hogs 13.9%, Heating Oil 16.2%, Cattle 2.1%, Natural Gas 16.3%, Orange Juice 8.1%, Platinum 1.9%, Gold in USD 1.5%, Gold in AUD 1.9%, Corn 2.8%, Rice 2.6%, Wheat 4.3%, Dow Jones Transports 2.6% and Istanbul’s BIST equity index 3.5%.

The group of decliners included;

Aluminium (2.7%), Gold Volatility Index (3.6%), Hot Rolled Coal Steel (3.1%), Japan Korea LNG Marker (2%), Coffee (3.4%), Lumber (13.9%), Palladium (2.7%), Sugar (1.7%), Dutch TTF Gas (8%), Oats (4.7%), KBW Banks (2.6%), Bovespa (1.8%), Nasdaq 100 (3%), Sensex (1.8%), Copenhagen (3%), Stockholm (1.8%), TAIEX (1.6%), S&P 500 (2.1%) and the Philadelphia Semiconductor Index (3%).

April 18, 2022

by Rob Zdravevski

rob@karriasset.com.au