Macro Extremes (week ending May 5, 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. 10 year bond yield minus U.S. 5 year bond yield

Overbought (RSI > 70)

Australian 3 month bank bill yield

Silver (in AUD)

Sugar

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

None

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

China 10 year government bond yields 

WTI Crude Oil 

S&P GSCI (commodities) Index

Brent Crude Oil

Corn

Soybeans

Wheat

Oversold (RSI < 30)

JKM LNG Gas

Lithium Hydroxide 

KBW Banking Index

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

Notes & Ideas:

This week markets were generally quiet.

Equities were muted again for another week as corporate earnings season was winding up. Most continue last week’s slight bias towards weaker prices.

For instance, the U.S. Midcaps and Smallcaps each fell 1.2% and 0.5% compounding last week’s corresponding respective declines of 0.3% and 1%.

Apart from the U.S. Bank Index exhibiting a notable loss, very few indices appear in this weeks list. 

For the week, the ASX 200 fell 1.2% and the ASX Small Caps eeked out a return of 0.1%.

The story of trendless equity markets continues.

Government bond yields rose in Australia and Japan while they fell in Europe and the United States.

The U.S. 5 year bond yield minus U.S. 3 month bond yield spread (or yield curve) is still Oversold, which means something.

Commodities continue host most of the action with the S&P GSCI Index hitting an oversold extreme aided by the weighting of decline seen amongst various energy contracts. 

Gasoil and Heating Oil achieved their long term mean reversion as cited in last weeks publication. 

JKM LNG closed at its lowest point since June 7, 2021

Softs bounced by the week’s close with a few still registering Oversold readings. 

Cattle has now fallen 7% oil the past 2 weeks. 

Sugar broke its 6 week winning streak and Australian Coking Coal ended its 5 week downdraft.

Heating Oil’s losing weekly streak has extend to 6 and Lithium’s in now 11 straight.

Amongst currencies, the EUR saw weakness and the AUD firmed up from recent Oversold levels.

The currencies trading at extremes last week are no longer so.

The larger advancers over the past week comprised of;

Australian Coking Coal 4.3%, Hot Rolled Coil Steel 3%, Lumber 2%, Tin 4.5%, Nickel 4.1%, Cotton 3.8%, Uranium 2.3%, Silver in AUD 2.4%, Corn 2%, Oats 5.5%, Rice 5.2%, Wheat 4.2%, HSCEI 1.4% and the Nasdaq Biotech Index rose 1.8%.

The group of decliners included;

Rotterdam Coal (6.8%), WTI Crude Oil (7.1%), Gasohol (3.5%), Lean Hogs (5.2%), Heating Oil (2.6%), JKM LNG (2%), Cattle (2.2%), Natural Gas (11.3%), Platinum (2%), Gasoline (6%), S&P GSCI (3.4%), Rubber (1.7%), CRB Index (2.4%), Dutch TTF Gas (5.1%), Urea (U.S. Gulf (2%), Brent Crude Oil (6.2%), KBW Banking Index (7.4%), Oslo (1.8%) and Russia’s MOEX fell 3.7%.

May 7, 2023

by Rob Zdravevski

rob@karriasset.com.au