Macro Extremes (week ending October 28, 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)

Orange Juice

U.S. 10 year minus German 10 year bond yields

Overbought (RSI > 70)

Cattle

U.S. 2, 5, 10 and 20 year government bond yields

German 2 year government bond yields

U.S. 5-7 year corporate bond yields

U.S. 10 year minus Australian 10 year bond yields

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

TBT

U.S. 30 year government bond yields

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

Coffee

Shanghai Composite

Oversold (RSI < 30)

Tin

Hot Rolled Coil Steel (HRC)

Cotton

Iron Ore

IEI & TLT

CSI 300 Index

Hang Seng & HSCEI Indices

Taiwan’s TAIEX index

KRW/USD

CNH/USD

JPY/USD

INR/USD

IDR/USD

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

None

Notes & Ideas:

There have been many changes from last week’s list especially within the currency and bond markets.

New additions to this weeks list include some eclectic bond spreads.

The big news this past week was the stellar advance in equity markets. Individually, they warrant attention and trend analysis. For example, Spain’s IBEX market has risen 10% over the past 2 weeks.

In other observations, I’m watching if indices such as the DJ Industrials and Transports make ‘higher highs’.

Weekly extremes in the AUD and CAD are no longer oversold.

The USD (DXY) is not overbought.

Many government bond yields fell notably during the week telling us bonds were ‘catching a bid’.

The 10 year bond yields of Australia, Canada, Switzerland, Spain, France, the UK, Italy and other…are not overbought, following a few weeks of appearing as so.

The German 2 and 5 year yields aren’t overbought anymore, while the U.S. listed bond IEF isn’t oversold.

The interest rate differential between the U.S. 10 year and Australian 10 year bond yields hit an overbought level (on my usual weekly basis measure) not seen since May 2019.

And finally, I want to remind and emphasise the height of the noise seen in British 10 year Gilts a few weeks ago, when yields touched 4.63%. They are now 3.50%.

A 25% move in 3 weeks is quite something, within a few weeks.

When bonds were being thrown away and sold by spooked by investors tuned in to the ‘temporary’ noise, they did so, at the wrong time.

This weekly publication is designed to highlight when pendulums are at the extremes points of their arcs.

The rest of the week’s notable movers are below.

The larger advancers over the past week comprised of;

Australian Coking Coal 8.9%, WTI Crude 3.4%, Gasoil 7.9%, Heating Oil 18.7%, Cattle 1.7%, Natural gas 14.6%, Dutch TTF Gas 22.7%, S&P GSCI 1.8%, AEX 2.3%, KBW Banks 5.9%, CAC 3.9%, DAX 4%, DJ Industrials 5.7%, DJ Transports 7%, MIB 4.5%, IBEX 4.9%, KOSPI 2.5%, S&P Midcap 400 5.3%, Nasdaq 100 2.1%, Oslo 2.9%, Copenhagen 5.1%, Stockholm 3.8%, Russell 2000 6%, SMI 3.4%, SOX 4.2%, S&P Midcap 5.3%, S&P 500 4%, STI 3%, TSX 3.2%, S&P SmallCap 600 6.1%, Nasdaq Biotech 6.8%, Nasdaq Composite 2.2% and Australia’s ASX 200 rose 1.6%.

The group of decliners included;

Rotterdam Coal (11.1%), Baltic Dry Index (15.7%), China Coal (9.2%), Iron Ore (2.8%), Lean Hogs (3.4%), Hot Rolled Coil Steel (HRC) (6.8%), JKM LNG Gas (7.1%), Coffee (11.1%), Lumber (14.8%), Tin (4.2%), Nickel (3.2%), Palladium (5.4%), Gasoline (3.7%), Sugar (4.4%), Cotton (8.9%), Florida Gulf Urea (9.6%), Middle East Urea (8.3%), Oats (2.6%), Wheat (2.5%), Shanghai Composite (4.1%), Hang Seng Index (8.3%), HSCEI (8.9%) and Brazil’s BOVESPA fell 4.5%

October 30, 2022

By Rob Zdravevski

rob@karriasset.com.au