Macro Extremes (week ending March 10, 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)

German 5 year government bond yields

U.S. 2 year government bond yields

U.S. 5 year minus U.S. 5 year inflation breakeven 

Overbought (RSI > 70)

Cattle

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

German 2 year government bond yields

Hot Rolled Coil Steel (HRC)

Gold (in AUD)

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

U.S. 10 year minus U.S. 2 year yield spread

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

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

Corn

Wheat

KBW Bank Index

DJ Industrials

Nasdaq Biotechs

AUD/EUR

CAD/USD

AUD/SGD

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 were weak across the board led by U.S. banks, mid caps and small caps, while some holdout from the broad decline such as Taiwan only easing 0.5% and the Bovespa practically unchanged at -0.2%.

Selected equity indices double dipped back down toward their 200 week moving average such as the Russell 2000.

The Shanghai Composite had a outside bearish week as did the CSI 300, CAC, MIB, HSCEI, IBEX, KOSPI and the Nasdaq Composite (to only name several)……

And the Nasdaq Biotech Index revisited an oversold extreme.

Amongst bonds, yields fell. Bonds were being bought across all durations.

Some yield spreads (curves) have also started to appear in the weekly ‘extremes’ list.

Not withstanding the coming weeks of gyration, there is room for yields to fall if we simply observe 1) the percentage at which yields are trading above their 50 and 200 week moving averages, 2) their relevance to 5 year inflation breakeven rates and 3) honouring an eventual mean reversion (or convergence) down to a 200 week moving average. 

In commodities, 

The Baltic Dry Index remains on a tear.

Most energy contracts resumed their weakness (for which I’ll look for lower entry prices soon) and 

Gold started touching overbought levels in various currencies, while the Gold Volatility Index also had a notable rise for the week.  

JKM LNG is closing in on my buy target although we need temper expectations of prices skyrocketing again. It’s not prudent to paint ‘shapes’ of V’s or W’s.

Palladium was weaker as it nears an entry level.

Softs were weak again as Wheat completed a mean reversion back to its 200 week moving average.

In past notes, I’ve been warning of lower Corn prices, which this week started touching the lower end of its pendulum.

I’m watching the Copper/Gold Ratio for help in interest rate direction.

And Cattle is Overbought for the 22nd consecutive week.

In currencies, the Aussie was weak, everywhere, against everyone.

The AUD/EUR saw it lowest close since January 2022 and the AUD/GBP has its lowest close in 12 months.

Some of these currency crosses are appearing in the extremes list.

The larger advancers over the past week comprised of;

Rotterdam Coal 2.5%, Baltic Dry Index 17.6%, Lean Hogs 3.4%, Lumber 2%, Orange Juice 6.2%, Dutch TTF Gas 17.5%, Gold (in AUD) 3.5%, Gold (in CAD) 2.3%, Oats 4.5% and Turkey’s BIST rallied 3.9%

The group of decliners included;

Aluminium (3.3%),Bloomberg Commodity Index (3.5%), Cocoa (2%), WTI Crude (3.8%), Gasoil (5.1%), Heating Oil (4.8%), Tin (6.3%), Natural Gas (19.3%), Nickel (2.2%), Palladium (6%), Platinum (1.8%), Gasoline (3.8%), CRB Index (3.7%), Urea U.S. Gulf (2.8%), Urea Middle East (6%),Brent Crude (3.8%), Silver (3.5%), Cotton (7.1%), Corn (3.5%), Rice (5.8%), Wheat (4.2%), SPGSCI (3.3%), Shanghai (3%), CSI 300 (4%), AEX (2.3%), KBW Bank Index (15.7%), CAC (1.7%), DJ Industrials (4.4%), DJ Transports (6%), MIB (2%), HSCEI (7.1%), Hang Seng (6.1%), IBEX (1.9%), Nasdaq Composite (4.7%), S&P Midcap 400 (7.4%), Nasdaq Biotech’s (6.3%), Nasdaq 100 (3.8%), Oslo (2.8%), Copenhagen (2.7%), Helsinki (3.8%), Stockholm (2.7%), Russell 2000 (7.9%), S&P SmallCap 600 (7.6%), SMI (3.8%), SOX (3.5%), S&P 500 (4.6%), STI (1.7%), TSX (3.9%), FTSE 100 (2.5%), ASX 200 (1.9%), ASX Small Caps (1.8%) and Mexico’s IPC fell 2.6%.

March 12, 2023

by Rob Zdravevski

rob@karriasset.com.au