Macro Extremes (week ending January 27, 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)

Gold (in U.S. Dollars)

Cattle

SGD/USD

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)

None

Oversold (RSI < 30)

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

Natural Gas

Urea (U.S. Gulf) 

Urea (Middle East)

USD/SGD

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

None

Notes & Ideas:

Turkey’s BIST Index is no longer Overbought. This is worth a mention because this stock index tripled in value over the past 12 months.

Global Equities resumed their rally.

As a recent blog post of mine said, “market wants to rally….and so the herd starts agreeing the same….and more and more will believe that it wants to rally…..and so it rallies until the last momentum holdout joins in……the antithesis is to sell on ‘up days’ before they become ‘down days’”

Last week, I highlighted the bullish cries amongst market pundits aimed at Chinese equities. They continued to rally this week, although caveat emptor is advised when observing the near-term pendulum. 

Commodities generally had a benign week with many prices posting ‘inside weeks’.

Other notable price action was seen in those commodities who have or are close to reverting back to their 200 week moving average or being Oversold….such as Rotterdam Coal, Urea, Dutch TTF Gas ($2 from its 200 WMA), Lean Hogs, Natural Gas (in its 6th consecutive down week) and the Baltic Dry Index, which I’m looking for a swoon towards $520.

The Baltic Dry Index continues its slump. It has now slumped 73% in the past 4 weeks.

And Palladium closed at its lowest level since March 23, 2021.

In currencies, the general news is that the USD continues to weaken (back towards its long-term mean) and all of those currencies (JPY, KRW, CLP, DKK) which were Oversold several weeks ago against the USD are now much stronger.

The AUD/CAD is nearing an Overbought reading, in fact the AUD was up 2% against everything for the week.

EUR/USD is nearing Overbought levels and has now risen 13% from its pessimistic early October 2022 lows.

Bonds had a quiet week considering the past 6 or so weeks. 

Yields generally reversed their declining streaks, which we were in line with last weeks comments.

The larger advancers over the past week comprised of;

Cocoa 2.3%, China Coal 2.5%, Hot Rolled Coiled Steel 8.4%, Coffee 9.8%, Lumber 14.3%, Sugar 6.3%, Uranium 3.5%, Oats 4.7%, Shanghai 2.2%, CSI 300 2.6%, KBW Banking Index 4.7%, Nasdaq 4.7%, DJ Industrials 1.8%, MIB 2.6%, HSCEI 3.9%, HSI 2.9%, Nasdaq Composite 4.3%, KOSPI 3.7%, S&P MidCap 400 2.5%, Nasdaq 100 4.7%, Nikkei 225 3.1%, S&P Small Cap 600 2.1%, Russell 2000 2.4%, SOX 5.4%, S&P 500 2.5%, STI 3.1%, Toronto’s TSX 1% and Australia’s ASX 200 rose 0.6% while the ASX Small Cap Index improved 0.9%.

The group of decliners included;

Rotterdam Coal (19.2%), Baltic Dry Index (11.4%), WTI Crude Oil (2.4%), Gasohol (4.6%), Lean Hogs (2.5%), Heating Oil (5.8%), JKM LNG (14.5%), Natural Gas (10.2%), Palladium (7.2%), Platinum (3%), Gasoline (2%), Dutch TTF Gas (17.1%), Urea U.S. Gulf (12.2%), Brent Crude (1.8%), Urea Middle East (12.1%), Silver AUD (3.3%), Gold AUD (1.9%) and Copenhagen’s equity index fell 1.8% 

January 29, 2023

by Rob Zdravevski

rob@karriasset.com.au