Macro Extremes (week ending November 25, 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)
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)
U.S. 10 year bond yield minus the U.S. 2 year bond yield (curve)

Oversold (RSI < 30)
Hot Rolled Coil Steel (HRC)

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
Chilean 10 year government bond yield

Notes & Ideas:

Following last week’s sensible week, this past week was even more so.

It produced the most benign week (lack) of extremes recorded in the 2 years that I’ve been writing this weekly publication.

If I had to pick the biggest news for the week, it would be the continuing weakness and breaking of support levels in selected energy commodities.

We saw a reverberating bounce in gas and coal prices. Rotterdam delivered coal has soared 25% in the past fortnight.
And bond prices generally held up.

Over the past month, the U.S. 20 year bond yields came in from 4.66% to 3.98% and the 30 year’s firmed from 4.42% to 3.78%.
Or put another way, the ‘TLT’ (the 20+ year Treasury Bond ETF) has risen 9% over that same time.

Not bad for a ‘boring bond investment.
In contrast, the S&P 500 rose 3.4% over the same time.

Although I did see an obscure move in the bond markets where the Brazilian 10 year yield rose (against the grain) for the 3rd consecutive week. They are now back to 13.65% compared to their recent 11.85% plateau.

The larger advancers over the past week comprised of;
Rotterdam Coal 16.3%, Baltic Dry Index 11.4%, China Coal 9.1%, JKM LNG 13.6%, Coffee 6.4%, Natural Gas 11.4%, Orange Juice 4.8%, Silver 2.4%, Dutch TTF Gas 12%, Rice 1.9%, KBW Banking Index 2%, DJ Industrials 1.8%, IBEX 3.6%, S&P 400 MidCap 2%, Nickel 1.4%, Oslo Bourse 3.3%, Copenhagen 1.9%, S&P 500 1.5%, TAIEX 1.9%, FTSE 1.4%, Istanbul BIST Index 10.3%, Toronto’s TSX 2% and Australia’s ASX 200 rose 1.5%

The group of decliners included;
Aluminium (2.8%), WTI Crude (4.8%), Gasoil (3.1%), Heating Oil (7.9%), Tin (7.4%), Nickel (3.4%), Palladium (6.1%), Gasoline (3.8%), Sugar (3.6%), Cotton (4.3%), Urea Florida Gulf Urea (2.3%), Brent Crude (4.6%), Middle East Urea (6.9%), Oats (3.2%), Whet (3%), S&P GSCI (2.3%), HSCEI (2.5%) and Hang Seng (2.3%).

November 27, 2022
by Rob Zdravevski
rob@karriasset.com.au