Macro Extremes (week ending November 11, 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)

Copper

Sugar

Silver in AUD and USD

Italy’s MIB Index

Overbought (RSI > 70)

Cattle

U.S. 2 year government bond yields

German 2 year government bond yields

U.S. 5-7 year corporate bond yields

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

None

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

Coffee

Bitcoin 

Chilean 10 year government bond yield

Oversold (RSI < 30)

U.S. 5 year yield minus U.S. 3 month bill yield spread

Hot Rolled Coil Steel (HRC)

Tin

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

None

Notes & Ideas:

If we look back to the past several weeks of Macro Extremes editions, you’ll notice all of those oversold currencies (versus the USD) and overbought bond yields, are no longer appearing currently.

As this publication highlights, once set prices touch their ‘extremes’, they tend to not spend much time at the pendulums highest or lowest arc.

‘All of those currencies’ have rallied, even the Rupee and the Rupiah.

The AUD/USD has risen 8% from 0.62 to 0.67 over the past month.

Bond yields have moved back lower, meaning bond prices are rising. For example, the U.S. listed bond ETF’s, IEF and TLT rallied 2.7% and 3.9% this week alone.

Weeks ago the U.S. 10 year bond was yielding 4.33%, now its 3.85%.

When Liz Truss was trying to torpedo the U.K. economy, its 10 year Gilts plunged and the yield rose to 4.77%. Today, they are yielding 3.35%.

It’s a constant reminder that many people (whether it’s institutional, corporate and individual investors or speculators) do the wrong thing, at the wrong time, at the wrong end of the pendulum.

Amongst the movers list below, it was a week for equities to soar and extend their rallies. The astonishing moves seen in the Nasdaq and the SOX.

The Hang Seng Index added 7% this week, to last week’s 9% advance and South Korea’s KOSPI’s rose a further 6% this week.

Switzerland’s SMI Index has risen 10% over the past 7 weeks, which was from the moment that it last appeared in the Oversold section of this publication.

However, this week saw the first equity index register a ‘Macro Extreme’ Overbought reading in many a week. That index is Italy’s FTSE MIB Index, which is understandable following a 17% advance over the past 6 weeks

Germany’s DAX Index has risen the amount over the same time and it is approximately 1.2% from joining the same overbought category.

Ahhh, that was more than a year’s worth of returns achieved in under 2 months.

Equity indices which didn’t join the party included China’s Shanghai Composite and CSI 300 which ‘only’ rose 0.6% while the U.K’s FTSE 100 fell 0.2% for the week.

The base and precious metals had a very good outing with Aluminium having rallied 12% in the past 2 weeks. Most of the metals had good weeks in U.S. Dollar terms. For example, Silver in USD climbed 4% but in AUD it only rose 0.5%, while Gold in USD firmed 5.4%, in AUD that figure was 1.7%.

And the energy commodities exhibited weakness as they remain the last holdouts of a broader commodity mean reversion.

The softs are mixed with Cocoa rising 4% (9% in 2 weeks), Rotterdam delivered Coal has fallen 22% over 2 weeks, in fact it has halved and it lower than pre-Ukraine invasion prices while Coffee continues to trend lower and is nearing an extreme of its own.

The larger advancers over the past week comprised of;

Aluminium 4%, Baltic Dry Index 2.4%, Cocoa 3.5%, China Coal 7.9%, Lean Hogs 1.7%, Copper 6.2%, Tin 10.5%, Nickel 7%, Palladium 10.2%, Platinum 8.1%, Sugar 5%, Silver 4.3%, Gold 5.4%, Gold in AUD 1.7%, AEX 4.6%, U.S. Banking Index 5.8%, CAC 2.8%, DAX 5.7%, Dow Jones Industrials 4.2%, DJ Transports 8%, MIB 5%, HSCEI 7%, Hang Seng 7.2%, INEX 2%, KOSPI 5.7%, S&P MidCap 400 5.3%, Nasdaq 100 8.8%, Nikkei 3.8%, Copenhagen 5.4%, Helsinki 3.6%, Stockholm 5.5%, Russell 2000 4.6%, SMI 3.2%, SOX 14.9%, S&P 500 5.9%, STI 3.1%, TAIEX 7.5%, TSX 3.4%, S&P SmallCap 600 5.3%, Nasdaq Biotechs 3.9%,  Nasdaq Composite 8.1% and Australia’s ASX 200 rose 3.9%.

The group of decliners included;

Rotterdam Coal (12.8%), Australian Coking Coal (5.1%), WTI Crude (3.9%), DXY Index (4%), Heating Oil (9.2%), Hot Rolled Coil Steel (2.4%), JKM LNG Gas (5.9%), Lumber (1.7%), Gasoil (11.4%), Coffee (4.4%), Natural Gas (8.1%), Orange Juice (4.5%), Gasoline (4.6%), Dutch TTF Gas (14.8%), Florida Urea (2.5%), Brent Crude (2.8%), Middle East Urea (5.3%), Corn (3.4%), Wheat (4%), S&P GSCI (2.9%) and Brazil’s BOVESPA fell 5%.

November 11, 2022

by Rob Zdravevski

rob@karriasset.com.au