Macro Extremes (week ending April 21, 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)

Coffee 

Copenhagen

BRL/USD

U.K. 3 years government bond yields

Overbought (RSI > 70)

Cocoa

Hot Rolled Coil Steel (HRC)

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

Cattle

Sugar

Russia’s MOEX Index

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

None

Oversold (RSI < 30)

U.S. 5 year bond yield minus U.S. 3 month bond yield

Urea (Middle East)

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

Lithium Hydroxide 

Notes & Ideas:

Equities generally had quiet week. In Europe they traded slightly higher through the past week, while U.S. and Australian equities ranged from being slightly lower to unchanged. Asian and South American bourses bore the larger losses for the week, with Chile dropping the most as the government plans to nationalise the lithium industry.

Continuing previous weekly commentary, equities are consolidating and broadly remain treadless, although Spain’s IBEX and Switzerland’s SMI did make ‘recent’ higher highs.

Government bond yields moved in the direction that I wrote about last week. They rose modestly across the world except for the Canadians.

With the recent hoo-ha in the bond market, it’s timely to paraphrase a Kipling adage, ‘keeping one’s head while others are losing theirs’. 

Several weeks ago, the U.S. 2 bond was yielding 5.08%. It then tanked to 3.56% and is now trading at 4.20%, which is close to being at the mid-point of those highs and lows.

Overall Commodities traded quietly with a bias for lower prices with energy and copper and soybeans leading the way while metals (industrial and PGM’s) saw strength. 

The PGM’s (platinum and palladium) have had a stellar run while Australian Coking Coal prices have declined 25% over the past 4 weeks.

Last week’s overbought orange juice along with gold and silver (as priced in AUD) are no longer so.

The currencies which were at extremes last week, are not anymore.

The U.S. Dollar was slightly firmer (amongst media noise discussing its demise), enough so to lift it out of oversold territory.

The AUD was weaker against the EUR and GBP, while the BRL continues to weaken against the USD.

The larger advancers over the past week comprised of;

Rotterdam Coal 2.5%, Baltic Dry Index 4.8%, Cocoa 3%, China Coal 13.2%, Lumber 2%, Tin 13.6%, Natural Gas 5.6%, Nickel 6.7%, Palladium 7.4%, Platinum 8%, Sugar 3%, MOEX 3.2% and the Nasdaq Transports rose 2.1%.

The group of decliners included;

Australian Coking Coal (3.7%), Bloomberg Commodity Index (2.1%), WTI Crude (5.6%), Gasoil (6.2%), Lean Hogs (4.3%), Copper (3.1%), Heating Oil (5.7%), JKM LNG (6.3%), Lithium (2.1%), Gasoline (8.3%), S&P GSCI (3.5%), CRB Index (2%), Cotton (3.3%), Dutch TTF Gas (2.4%), Brent Crude (5.8%), Soybeans (3.4%), Rice (1.5%), CSI 300 (1.4%), HSCEI (2.2%), Hang Seng (1.8%), BOVESPA (1.8%), Helsinki (2.1%), TAIEX (2.1%), SET (2.2%) and Chile fell 3.5%.

For reference, Australia’s Small Cap fell 1.1%, the ASX 200 eased 0.4% lower, Toronto’s TSX rose 0.6%, the Dow Jones Industrials and S&P 500 were almost unchanged with slight declines of 0.2% and 0.1% respectively, the Nasdaq Composite and 100 correspondingly lost 0.4% and 0.6%, the Philadelphia SOX Index slumped 1.6% whilst the Dow Jones Transport Index climbed 1.2% for the week.

April 23, 2023

by Rob Zdravevski

rob@karriasset.com.au