Selling Euro / buying USD

Euro (vs USD) is touching new overbought extremes.

As the trading week comes to a close, we see EUR/USD trading at 1.1060.

Good enough.

The fat part of the trade from those 0.9900 prices seen during the Sept/Oct 2022 lows….has been seen.

April 14, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending April 7, 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)

SHY (U.S. 1-3 year bond ETF) 

GBP/USD

Overbought (RSI > 70)

Hot Rolled Coil Steel (HRC)

Cattle

Gold (in AUD)

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

Orange Juice

Sugar

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

Copper/Gold Ratio

U.S. 5 year bond yield minus U.S. 5 year inflation break-even rate

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)

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

Lithium

Notes & Ideas:

Equities continued with further consolidation with a slight bias towards weakness across most bourses. 

Some may see equites as being range bound for many months now, with may many staying within a 15% range and are still at the same price as June 2022 such as the S&P 500 and Switzerland’s SMI.

The Nasdaq 100 took a break from a 3 week advancing streak by easing 1%, while many small cap indices remain in downward trends.

Amongst bonds, government bond yields generally fell. Many bond yields continue to trade within the boundaries of any extremes but there are some which are getting close to the edge.

Commodities were generally stronger with support seen across the energy complex except for the Gases.

Petroleum energy continued its rebound. WTI Crude has risen 19.4% in 3 weeks while the 3 major Gas commodities contracts continue their declines.

In other notable percentage streaks over the past 2 or 3 weeks, Australian Coking Coal has fallen 19%, Rice has eased 7% while Sugar has soared 13% and Silver has climbed 7.5%.

In currencies, the AUD was weak across all crosses while the EUR strength persists.

The larger advancers over the past week comprised of;

Baltic Dry Index 12.3%, WTI Crude 6.7%, Gasoil 2.3%, Coffee 7.7%, Lumber 3.6%, Orange Juice 2.2%, Gasoline 4.9%, Sugar 6.1%, S&P GSCI 2.6%, Urea U.S. Gulf 6.1%, Brent 6.3%, Silver in AUD 3.8%, Silver in USD 3.6%, Gold in AUD 2.2%, Gold in CAD 1.9%, Gold in USD 2%,CSI 300 1.8% and the FTSE 100 rose 1.4%. 

The group of decliners included;

Australian Coking Coal (14.6%), Aluminium (2.5%), Rotterdam Coal (4.2%), Iron Ore (6.5%), Copper (1.9%), JKM LNG (6.6%), Lithium (13.4%), Natural Gas (9.3%), Nickel (2.3%), Dutch TTF Gas (9.9%), Corn (2.6%), Oats (6.6%), Rice (4.5%), Wheat (2.4%), KBW Bank Index (2%), DJ Transports (3.3%), S&P MidCap 400 (2.6%), Nikkei 225 (1.9%), Stockholm (1.8%), Russell 2000 (2.7%), S&P SmallCap 600 (2.8%), Philadelphia Semiconductor Index (4.9%) and Thailand’s SET Index fell 2%.

April 8, 2023

by Rob Zdravevski

rob@karriasset.com.au 

German bond yields to halve

Currently the German 5 year bond is yielding 2.73%, I have a view that within a ‘mid cycle slow down’ this bond may yield between 1.12% and 1.33% within the next 15 months.

If so, (as the chart below implies) this means the price of the German bond would rise and thus the price of the Nasdaq 100 (or let’s broadly say technology stocks) will do the same.

Other than than a lower cost of capital, there are also other scenarios and considerations should this opinion develop.

One example would include relief for banks, insurance and pension funds who are presently suffering from unrealised mark-to-market losses on their longer dated bond maturities.

More on other scenarios later.

April 4, 2023

by Rob Zdravevski

rob@karriasset.com.au

Watching Urea and its cousins in price action

I’m still waiting for the price of Urea to crater.

In January 2023, I wrote this…

Urea – Accumulate Signal

I am yet to initiate any long positions in Urea or other correlated price relationships.

Moreover, the price action in Urea isn’t acting in a healthy manner.

This view is being influenced by my opinion that Natural Gas may either fall or rise by 60% from its recent $2.50 price.

Natural Gas can be dangerous

My bias is for lower Natural Gas prices and thus we should see pressure on Urea, Wheat and Fertilser prices too.

Middle Eastern Urea prices join the Oversold parade

That’s where the buying opportunities will appear but I am waiting for now.

April 2, 2023

by Rob Zdravevski

rob@karriasset.com.au

Price relationships of….Hot Rolled Coil Steel

Here is an idea to extract from my weekly Macro Extremes publication.

Hot Rolled Coil (HRC) Steel is currently registering an Overbought reading.

Then I overlay the price of a steel producer such as Nucor.

I look for correlation and matching extreme moments, which uncannily appear.

The ellipses in the chart below point to moments when Nucor’s stock price is Overbought on a weekly basis and trading at extreme percentages above its 200 week moving average.

This can spit out a bunch of scenarios such as; a) sell or short Nucor, b) short or sell HRC, c) if you’re a producer you may want to lock in your near/mid term selling prices, d) if you a buyer of steel perhaps hold off doing so as probability suggests you’ll get lower prices or e) don’t chase or initiate a new buy in the equity of steel producers.

Keep in mind, that I’ll compliment this empirical study with some fundamental analysis.

But 2nd and 3rd derivative effects can then move seeing how Hot Rolled Coil Steel prices act against U.S. GDP, government bond yields or the U.S. 5 year inflation break-even rate.

Then you’re off, extrapolating and comparing a load of price relationships to help cross reference your view on the direction of the AUD/USD perhaps.

April 2, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending March 31, 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)

Hot Rolled Coil Steel (HRC)

Cattle

Orange Juice

Gold (in AUD)

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

Cocoa

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

AUD/IDR

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)

Lithium

Notes & Ideas:

Equities consolidated through the week and were mostly positive for the week, with Asian bourses posting solid weekly returns.

The ASX 200 broke its 7 week losing streak

The KBW Bank Index continued to find some support.

The Nasdaq 100 continues its climb, now adding up to 11.3% over the past 3 weeks. Lagging behind is the S&P 500 having climbed ‘only’ 6.4% over the same time.

Heck, Stockholm’s OMX 30 did 6.5% just this week alone.

Ahh, remember when that was considered an adequate return for the year?

Amongst bonds, yields generally rose across the government debt of the world.

Many of the spreads listed as ‘extremes’ in last week’s edition are no trading there now. The same is for other bond yields.

Commodities were generally stronger with strength saw support across the energy complex except for the Gases.

Strength in Crude Oil also helped the commodity indices get out of Oversold territory. In fact, WTI Crude has risen 12.7% in 2 weeks.

It’s worthy to note that U.S. Mid West Hot Rolled Coil (HRC) Steel has doubled over the last few months,

And Gold in CAD is no longer Overbought.

In currencies, the AUD was steady to firm amongst its crosses whilst the Yen saw weakness against everyone.

The larger advancers over the past week comprised of;

Aluminium 3.3%, Rotterdam Coal 4.3%, Bloomberg Commodity Index 2.4%, Cocoa 1.7%, WTI Crude 9.3%, HRC Steel 10.1%, JKM LNG 6.4%, Cattle 3.3%, Tin 10.9%, Nickel2.7%, Orange Juice 6.1%, Palladium 3.8%, Platinum 2%, Gasoline 3.6%, Sugar 6.9%, SPGSCI 4.5%, CRB Index 3.6%, Cotton 8.2%, Dutch TTF Gas 16.4%, Brent Crude 7%, Silver in AUD 3.1%, Silver 3.9%, Corn 2.7%, Soybean 5.4%, AEX 3.3%, KBW Banks 4.7%, CAC 4.4%, DAX 4.5%, DJ Industrials 3.2%, DJ Transport 5.3%, MIB 4.7%, HSCEI 2.6%, Hang Seng 2.4%, IBEX 5%, Bovespa 3.1%, Nasdaq Composite 3.4%, KOSPI 2.6%, S&P MidCap 400 4.6%, Nasdaq Biotech 2.4%, Nasdaq 100 3.3%, Nikkei 225 2.4%, Oslo 4.5%, Copenhagen 3.2%, Helsinki 3.6%, Stockholm 6.5%, Russell 2000 3.7%, Sensex 2.6%, S&P SmallCap 600 3.9%, Swiss SMI 4.4%, SOX 3.5%, TSX 3.1%, FTSE 100 3.1% and Australia’s ASX 200 rose3.2% and the ASX Small Caps climbed 4.3%. 

The group of decliners included;

Australian Coking Coal (14.6%), Baltic Dry Index (6.7%), China Coal (7.1%). Lean Hogs (2.5%), Heating Oil (2.8%), Coffee (4.9%), Lumber (10.2%), Urea Middle East (5.8%), Gold in CAD (2.1%) and Rice fell 2.6%.

April 2, 2023

by Rob Zdravevski

rob@karriasset.com.au