Macro Extremes (week ending January 6, 2023)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities  

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)

German 2 year government bond yields

Gold (in Canadian Dollars)

Cattle

Istanbul’s BIST Index

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

Japanese 10 year bond yield

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

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

Oversold (RSI < 30)

Urea (U.S. Gulf) 

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

Turkish 10 year government bond yields

Notes & Ideas:

This week’s biggest news was the stunning rally in equities, mainly seen in Europe.

So much so, the U.K’s FTSE 100 closed at its highest level since late July 2018.

Encouragingly, the U.S. small and mid caps outperformed the large cap indices.

Bond yields mainly fell, meaning bond prices rose as they caught a bid.

This means we bond prices rising while equities were doing the same.

Amongst the currencies, I’m seeing continued strength in the Korean Won, the Singapore Dollar and the Japanese Yen versus the USD, as they swing towards the other end of the pendulum. I recall their weakness 3 months ago.

The AUD/GBP continued its rise following a recent outside bullish weekly reversal.

In commodities, Lean Hogs mean reverted to their 200 week moving average.

Australian Coking Coal prices have risen 20% in the past 2 weeks.

Energy prices resumed/continued their decline. Natural Gas prices have fallen 30% in the past 2 weeks.

Grains saw weakness as they near Oversold levels

And the Baltic Dry Index slumped 25% as it attempts to re-test the August 2022 lows. (see the chart below)

I’ve got some correlations to study relating to these commodities.

The larger advancers over the past week comprised of;

Australia Coking Coal 8.2%, Copper 2.6%, Platinum 2%, Cotton 2.8%, Uranium 2.6%, Gold 2.3%, Shanghai 2.2%, CSI 300 2.8%, AEX 5.1%, KBW Banking Index 4.4%, CAC 6%, DAX 4.9%, DJ Transports 3.6%, MIB 6.2%, HSCEI 6.5%, HSI 6.%, IBEX 5.7%, KOSPI 2.4%, S&P MidCap 400 2.6%, Nasdaq Biotech 1.8%, Helsinki 3%, Stockholm 4.6%, Russell 2000 1.8%, S&P SmallCap 600 2.4%, SMI 3.9%, SOX 4.1%, TAEIX 1.7%, TSX 2.2%, FTSE 100 3.3% and Australia’s Small Cap Index rallied 3.2%.

Incidentally, the Dow Jones Industrials and the S&P 500 rose 1.5%, while the Nasdaq and the ASX 200 both advanced 1%.

The group of decliners included;

Aluminium (5.2%), Rotterdam Coal (9.6%), Bloomberg Commodity Index (4.2%), Baltic Dry Index (25.4%), China Coal (2.2%), WTI Crude (8.1%), Gasoil (4.4%), Lean Hogs (8.5%), Heating Oil (8.8%), HRC (1.9%), JKM LNG (3.6%), Coffee (5.4%), Natural Gas (17.1%), Nickel (3.8%), Gasoline (9.4%), Sugar (5.4%), CRB Index (4.7%), Dutch TTF Gas (8.9%), Urea U.S. Gulf (7.1%), Brent Crude (8.7%), Urea Middel East (4.2%), Corn (3.6%), Oats (6.3%), Rice (3.4%), Soybean (2.1%), Wheat (6.1%), S&P GSCI (6%) while Brazil’s BOVESPA declined 0.7% and India’s SENSEX fell 1.6%.

January 8, 2023

by Rob Zdravevski

rob@karriasset.com.au