Macro Extremes (week ending February 24, 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)

U.S. 2 year government bond yield

Australian Coking Coal 

Overbought (RSI > 70)

German 2 year government bond yields

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

U.S. 2 year government bond yield

Hot Rolled Coil Steel (HRC)


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


Oversold (RSI < 30)

Urea (U.S. Gulf) 

Urea (Middle East)

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


Notes & Ideas:

Following a couple quiet weeks, Equities were lower. More comical were the ‘fear’ reports from the financial media that equities had the worst weeks for some months.

The overbought European indices which featured in last weeks edition, aren’t overbought.

The HSCEI has fallen 14% in the past 4 weeks. Such a decline in western markets would spook many. 

Amongst bonds, yields generally rose. The U.S. 2 year bond yield saw its highest closing weekly price since mid-July 2007, whilst its intra-day is yet to break that seen on October 31, 2022

The Australian yield curve is the lowest since mid-August 2019. At a current spread of 0.17%, we’ll watch if it inverts. The last time we saw that was in August 2008.

Something else to watch is the possible change in trend (downward) in the U.S. 10 year minus Australian 10 year yield spread. It has a healthy correlation with the S&P 500.

And the U.S. 5 year yield minus U.S. 3 month bill yield spread is no longer Oversold, while the U.S.30 year minus 10 year bond curve re-entered ‘inverted’ territory.

Last week, I mentioned that I’m watching the BAML 5-7 year corporate bond yield, the U.S. 5 year breakeven and the ‘real return’ of the 5 year minus 5 year breakeven yield.

That’s all still on my radar.

Incidentally, the 5 and 10 year breakeven inflation rate is at the start of an embryonic upward trend (on a weekly basis). I’ll watch this to decipher the ‘stickier’ inflation thesis.

In commodities, Rotterdam Coal, RBOB Gasoline, Natural Gas, U.S. Mideast Hot Rolled Coil Steel and the Baltic Dry Index had tremendous weeks. The latter snapping a 8 week losing streak.

Keep tabs on those streaks, for on a weekly basis, 6 of them is rare, 8 is even rarer.

Palladium continues its decline and getting closer to a buy signal as it hits a 7 week losing streak, falling 26% over that time.

Urea has similar traits.

Silver has fallen for the 6th consecutive week. Readers would have seen my “Sell Signal” note, back then.

Most ‘softs’ saw weakness (Wheat fell 7%) with my ‘short’ Corn call gaining a little traction.

Cattle is Overbought for the 20th consecutive week.

Cotton’s bearish outside week was decoy as it rose 4% on the week.

And finally, the Japan Korea LNG Marker (JKM) touched its lowest price since August 30th, 2021 and is also nearing a buying moment. (see the seperate post from last week)

In currencies, the AUD was lower against many, again. 

The USD was stronger. This also means that currency crosses such as the KRW and JPY are at their weakest since late November / early December 2022.

And previous outside bearish week seen in CAD/USD carried on with the Loonie easing 1%.

The larger advancers over the past week comprised of;

Rotterdam Coal 15.1%, Baltic Dry Index 64.1%, China Coal 4%, Gasoil 2.2%, Heating Oil 3.1%, Hot Rolled Coil Steel 27.8%, Natural Gas 12%, Orange Juice 3.4%, Gasoline 7.2%, Dutch TTF Gas 3.5%, Urea U.S. Gulf 3.4% and Cotton rose 4.2%. 

The group of decliners included;

Australian Coking Coal (2.8%), Aluminium (1.9%), Copper (3.8%), Copper/Gold Ratio (2.1%), JKM LNG (5.8%), Palladium (7.7%), Silver (4.5%), Urea Middle East (4.3%), Silver in AUD (2.4%), Gold (1.7%), Corn (4.1%), Oats (5%), Rice (4.5%), Wheat (7%), AEX (2.4%), KBW Banks (2.5%), CAC (2.2%), DAX(1.8%), DJ Industrials (3%), DJ Transports (3.4%), MIB (2.8%), HSCEI (4.1%), HSI (3.4%), BOVESPA (3.1%), Nasdaq Composite (3.3%), S&PMidCap400 (2.4%), Nasdaq Biotechs (4.8%), Nasdaq (3.1%), Stockholm (1.9%), Russell 2000 (3%), Sensex (2.5%), S&P SmallCap600 (2.7%), SOX Index (2.4%), S&P 500 (2.7%), FTSE 100 (1.6%) and Mexico fell 2.1%.

For reference, Toronto’s TSX fell 1.4%, the ASX 200 declined 0.5% and the ASX Small Caps eased lower by 0.7%.

February 26, 2023

by Rob Zdravevski 

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