Macro Extremes (week ending November 18, 2022)
November 19, 2022 Leave a comment
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
Nickel
Platinum
Silver in USD
Italy’s MIB Index
Overbought (RSI > 70)
Cattle
U.S. 2 year government bond yields
German 2 year government 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)
Chilean 10 year government bond yield
Oversold (RSI < 30)
Hot Rolled Coil Steel (HRC)
Coffee
The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)
U.S. 5 year yield minus U.S. 3 month bill yield spread
Notes & Ideas:
It was a wonderfully quiet and sensible week for capital markets, particularly in equities.
Amongst equity markets, I could generally call it consolidation or digestion. We saw some small declines (the ASX 200 fell 0.1% for the week) although many indices (positively) made higher highs and no outside bearish reversal weeks were registered.
While I’m watching the DAX closing in on the Overbought region.
Copper isn’t overbought following this weeks 7% decline.
Although, a signal for the equity market to note the decline seen in the Copper/Gold Ratio and respect its correlation to the Small Cap Index. The latter played the function of leading, being the first to decline and the first trough.
Also worth keeping an eye on is the larger declines seen this week in the U.S. Banking and Transports Index.
Tin moved out of oversold territory with a stellar 20% rise for the week.
It was a benign week for the softs, although Cotton is corkscrewing towards making new lows while Coffee is now Oversold.
And the energy complex resumed the decline that I have been calling and aligned to.
Bond yields continue to fall, meaning bonds are being bid higher. In many cases, that moment to buy bonds at the extremes has passed and we are now in between the range.
For example, I have a medium term call that Australian 2 year bond yields come down to the 2.40% range. In the past 4 weeks, they have already firmed in from 3.72% to their current 3.17%. The Australian 10’s have moved from 4.30% to 3.64% in the same timeframe.
Months ago, I wrote about Chile (along with commodity sensitive Mexico and Brazil) leading the global ‘interest rate pack’ in addressing rising inflation.
Chile aggressively raised interest rates and now its 10 year bond yield is mean reverting.
The yield has fallen from 7.10% to 5.54% over the last 6 weeks.
The larger advancers over the past week comprised of;
Rotterdam Coal 9%, Cattle 1%, Tin 19.4%, Natural Gas 7.2%, Nickel 9%, Sugar 2.1%, Dutch TTF Gas 18%, Oats 2.4%, HSCEI 3.8%, Hang Seng 3.8% and Taiwan’s TAIEX rose 3.6%.
The group of decliners included;
Australian Coking Coal (5.6%), Aluminium (2%), Baltic Dry Index (12.3%), Cocoa (2.5%), WTI Crude Oil (10%), Gasoil (4.2%), Copper (7.2%), Copper/Gold Ratio (6.4%), JKM LNG (3.1%), Coffee (7.7%), Palladium (4.3%), Platinum (5.2%), Gasoline (7.2%), Silver (3.1%), CRB Index (3.3%), Cotton (5%), Brent Crude Oil (8.4%), Silver in AUD (3.5%), S&P GSCI (4.3%) KBW Banking Index (3.7%), DJ Transports (2.1%), Russell 2000 (1.8%), KOSPI (1.6%), Nasdaq Small Cap 700 (2.2%) and Brazil’s BOVESPA fell 3%.
November 19, 2022
by Rob Zdravevski
rob@karriasset.com.au
rob zdravevski's blog 