Macro Extremes (week ending July 15, 2022)

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

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

None

Overbought (RSI > 70)

U.S. 2 year government bond yields 

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

U.S. Dollar Index



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

Bloomberg Commodity Index

Cocoa

WTI Crude Oil

Gold futures (current contract)

Coffee

Brent Crude Oil

Soybeans

Wheat

CAD/USD

Oversold (RSI < 30)

Hot Rolled Coiled Steel

Tin

Silver (in USD)

South Korea’s KOSPI equity index

Taiwan’s TAEIX equity index

Russia’s MOEX Index

Canada’s TSX Index

GBP/USD

IDR/USD

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

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

Copper (and 200 WMA)

Copper/Gold Ratio

Chilean Peso / U.S. Dollar (4th consecutive week)

DKK/USD

SEK/USD

INR/USD

JPY/USD

KRW/USD

EUR/USD

Notes & Ideas:

Note the lack of ‘entrants’ in the Overbought end of the Extremes.

The action is in the Oversold section.

This week’s biggest news is the continued decline in various commodities, joining the mean reversion chorus.

For example; Wheat, Soybeans, Corn and Oil are now at prices lower than before the Russian invasion of Ukraine.

Bond yields acted somewhat correctly by falling, meaning bond were being bought more aggressively in light of growing pessimism. 

The Canadian central bank acted rashly by raising rates by 1% influenced by G-10 counterparts, rather than commencing their hiking stance15 months ago when most other commodity centric economies where doing so.

While we saw quiet, benign and perhaps consolidating action in most equity indices.

In earlier posts, I question ‘what if the lows (in equities) have already been seen”?

The Euro made new lows, again…as did the Yen and the Aussie, as the latter heads towards 0.6570.

The Korean Won and the Korean KOSPI returned to being oversold..

The U.S. yield curve remains inverted for the 2nd week in a row but this time, it has touched the quinella of a weekly Oversold and 2.5 deviations below its weekly mean.

This occurrence has been a good signal for the longer term accumulation of equities, as mentioned in this post.

Palladium fell 15% and is consolidating around its 200 week moving average while it isn’t yet Oversold.

This post from mid-June talks of my call for a $1,500 price target.

Platinum is closer to a Buy as is Gold.

Gasoline has declined 20% in 3 weeks. Other commodities in the energy complex continue to weaken, expect for Natural Gas which I called a bottom for recently, citing ‘taking the fat part’ of the short trade from $9.40, as it had recently halved. Nat Gas has risen 22% in past 2 weeks.

Coffee fell a further 10% (recall my call in past editions for it to halve) while I expect Cattle prices to decline next.

However, there should be a pause in the decline in the ‘softs’. Lower prices is not a one-way street as you’ll see some of (including Oil) appearing in the < 2.5 SD column in this week’s list.

The CRB Index posted another losing week as a heavy weighting to energy affects this index more than others.

All of this is aiding the case for an easing in inflation.

The weakness in Gold and Silver in both USD and AUD was also noticed. Silver in AUD has mean reverted, A$26.50 in an entry point I’ll analyse.

In equity indices the Italy’s MIB, Brazil’s Bovespa, the S&P MidCap 400 and S&P 600 SmallCap are also approaching Oversold.

Last week, I mentioned that I expect a ‘double dip’ in some indices and listed some prices.

The larger advancers over the past week comprised of; 

Baltic Dry Index 4%, Tin 3.7%, Natural Gas 16.2%, Philadelphia Semiconductor Index (SOX) 2.9%. 

The group of decliners included;

Australian Coal (2.1%), Bloomberg Commodity Index (2.1%), China Coal (5.6%), WTI Crude (6.9%), Gasoil (1.9%), Gold futures (2.2%), Hogs (18%), Copper (8.2%), JKM (7.9%), Coffee (9.4%), Lumber (8.2%), LNG (6.6%), Nickel (4%), Orange Juice (7.9%), Palladium (15.2%), Platinum (5.9%), Gasoline (6.8%), Rubber (1.7%), Silver (3.3%), CRB Index (3.5%), Cotton (6%), Dutch TTF (8.9%), Brent Crude (5.8%), Urea Middle East (5%), Uranium (3.6%), Silver in AUD (2.3%), Silver in USD (3.2%), Gold in USD (2%), Corn (4.6%), Oats (5.3%), Soybeans (10.2%), Wheat (12.9%), Shanghai (3.8%), CSI 300 (4.1%), MIB (3.9%), HSCEI (7.9%), HSI (6.6%), IBEX (1.9%), Bovespa (3.7%), MOEX 95.1%), Oslo (2.2%), Helsinki (2%), Stockholm (3.4%), TSX (3.3%) and the Nasdaq Biotechnology Index fell 2%.

July 17, 2022

by Rob Zdravevski

rob@karriasset.com.au  

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