Macro Extremes (week ending March 3, 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)

Chile

Overbought (RSI > 70)

German 2 year government bond yields

Cattle

IBEX and MIB

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

U.S. 2 year government bond yield

German 5 year government bond yield

Hot Rolled Coil Steel (HRC)

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

U.S. 10 year minus U.S. 5 year yield spread

U.S. 30 year minus U.S. 10 year yield spread

Orange Juice

Corn

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)

None

Notes & Ideas:

Equities had a positive week,  following a few weeks sideways to downward travel.

Most indices recovered more than half of last week’s declines. 

Some indices are trending higher such as Spain’s IBEX, which closed at its highest level since March 2020 and Italy’s MIB is back to prices seen in 2008.

Following lat weeks implied snip that HSCEI has fallen 14% in the past 4 weeks, it rose 3.5% this week

Amongst bonds, yields generally rose, except for the yields in Australian government durations. Those yields fell.

We saw U.S. 2’s along with German 2’s & 5’s yields touching overbought extremes, while selected spreads (yield curves) involving the U.S. 10’s were at the lower end of their pendulums.

The U.S. 2 year bond yield saw its highest closing weekly price since mid-July 2007 and it also broke above its late October 2022 intra-day high, while the U.S.30 year minus 10 year bond curve remains in ‘inverted’ territory.

In commodities, 

The Baltic Dry Index continued a marvellous run, now having double in 2 weeks. Is this implying that shipping demand, the economy and GDP is all improving?

Natural Gas has risen 30% in weeks following those recent weekly Oversold extremes while Gasoline and Hot Rolled Coil Steel continued their upward trends.

Sugar had a bearish outside week, most energy contracts rose and softs continued their weakness.

Silver and Platinum broke their respective 6 & 7 week losing streak.

I eluded to heightening ones attention when weekly streaks reach their 7th or 8th week.

Cattle is Overbought for the 21st consecutive week.

And finally, the Japan Korea LNG Marker (JKM) touched its lowest price since July 19th, 2021.

In currencies, nothing was doing….

The larger advancers over the past week comprised of;

Aluminium 3.1%, Baltic Dry Index 37.2%, Bloomberg Commodity Index 2.6%, WTI Crude 4.4%, Gasoil 5.9%, Copper 2.9%, Heating Oil 4.2%, HRC Steel 2.9%, Natural Gas 18.1%, Palladium 5.2%, Platinum 7.9%, Gasoline 6.6%, CRB Index 3%, Brent Crude 3.8%, Silver in AUD 1.8%, Silver in USD 2.5%, Gold in AUD 1.8%, Gold in USD 2.5%, Gold in CAD 2.5%, Rice 1.9%, SPGSCI 3.2%, Shanghai Composite 1.9%, CSI300 1.7%, AEX 1.9%, CAC 2.2%, DAX 2.4%, DJ Industrials 1.9%, DJ Transports 3.3%, MIB 3.1%, HSCEI 3.5%, HSI 2.8%, IBEX 2.9%, Nasdaq Composite 2.6%, S&P MidCap400 1.9%, Nasdaq Biotech 2.5%, S&P SmallCap600 1.9%, Nasdaq 100 2.7%, Chile 2%, Mexico 2.8%, TSX 1.8%, S&P 500 1.9%, Nikkei 225 1.7%, Oslo 2.4%, Helsinki 2.2%, Stockholm 2.1% and the Russell 2000 rose 2.3%  

The group of decliners included;

Rotterdam Coal (16.1%), Lean Hogs (1.7%), JKM LNG (4.4%), Coffee (5.3%), Tin (6%), Nickel (6.4%), Orange Juice (8.7%), Dutch TTF Gas (11.4%), Urea U.S. Gulf (5%), Urea Middle East (2.9%), Uranium (2.3%), Corn (1.6%), Oats (4%), Wheat (1.8%), BOVESPA (1.8%) and Singapore’s STI Index fell 1.5% into a 5th week of consecutive declines.

For reference, the ASX 200 declined 0.3% and the ASX Small Caps eased lower by 0.6%.

March 4, 2023

by Rob Zdravevski

rob@karriasset.com.au