Macro Extremes (week ending July 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) either 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)

Dow Jones Transports

U.S. 7 year government bond yield

Learn Hogs

Oats

Overbought (RSI > 70)

Australia 2 & 3 year government bond yields 

British 2, 3, 5 & 10 year government bond yields

U.S. 3 month bill yields

Cocoa 

Cotton

GBP/JPY

Nasdaq 100

India’s Nifty 50 and Sensex

And Russia’s MOEX equity index

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

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

Uranium

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

Brazil 10 year government bond yields 

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

Coffee

Oversold (RSI < 30)

Newcastle Coal

The Oversold Quinella – Both Oversold and Traded at < 2.5 standard deviations below the weekly mean)

None 

Notes & Ideas:

After taking a break last week, Equities were generally weaker.

The Dow Jones Transports Index took turns with the Nasdaq Transportation Index being overbought

Nasdaq 100 is overbought for the 7th straight week while the Nikkei 225 isn’t overbought this week. This is the 2nd weekly decline for the Nikkei following its 10 week winning streak.

The KRE Regional Bank Index and Chile’s stock market have both risen 5% over the past fortnight.

The Nasdaq Biotechnology Index has fallen 6% over the past 3 weeks.

The Dow Jones Industrial Average had an ‘inside week’, leaving last week’s bullish outside reversal week ‘thesis’ intact.

The FTSE 100 has seen its lowest close since November 3, 2022.

Istanbul’s BIST Index makes new all-time highs.

While South Korea’s KOSPI, Switzerland’s SMI, Australian ASX 200 and Frances’ CAC-40 all performed outside bearish reversal week’s.

The latter continues to whipsaw for it did a bullish version of this in the previous week. 

Sacré Bleu !

Most Government bond yields rose, again.

The whole range of Gilt yields are overbought.

The British 2’s, 3’s and 10’s continue to barrel higher and make ’ higher highs. They are now at their highest closing yields since October 2008.

German 2’s are at their highest closing weekly yield since September 2008 but the 5’s and 10’s are yet to break above their February ’23 highs.

U.S. 5 year minus U.S. 5 year breakeven inflation rate spread is overbought which means something.

The Australian 10 year minus 2 year bond yield spread ended its 4 week stint being oversold. The last time it was in that territory was August 2019 and prior to that was in July 2016.

The yield on the U.S. 3 month bill close at its highest level since New Year’s Day 2001.

Australian 2 & 3 year bond yields closed at their highest point since July 2011 and they are overbought on Monthly basis too.

The U.S. 2’s saw their highest closing yield since June 2007 and this weeks intra-week high did make a ‘higher high’ beyond 5.09% seen in March of 2023.

U.S. 10 year yield minus U.S. 2 year yield spread is approaching oversold territory, which also means something. 

The U.S. 10 year minus U.S. 5 year yield spread broke its 8th consecutive ‘losing’ week.

And inversely, the Brazilian 10 year yield has closed at its lowest level since August 23, 2021.

Perhaps this is the result of a central bank commencing its hawkish interest rates cycle, more than 12 months ahead of G-12 countries?

Commodities were mainly higher.

Energy prices generally rose for the 2nd week and helped the commodity indices post a 2% return for the week.

Crude Oil and Heating Oil have risen 7% over the past 2 weeks and is at its highest close since mid April 2023.

The Baltic Dry Index has sunk 20% over the past 2 weeks.

Lean Hogs and Oats return to overbought territory this week, after having a week’s rest.

In fact, Oats have soared 25% in the past 5 week winning streak.

U.S. Midwest Hot Rolled Coil Steel broke its 5 week losing streak by rising 4%.

Corn and Wheat were dormant following last weeks thrashing.

Natural Gas fell 8%, giving up some of the 27% return seen in the 4 weeks prior.

Inversely Sugar rose 3% to recover part of the 14% lost over the past fortnight.

Tin and Nickel reversed some of their recent declines. 

Coffee had a 5% range during the week in which it traded to an oversold level. It has fallen 20% over the past 10 weeks.

And Orange Juice had a bullish outside reversal week.

Currencies were benign and mixed with slight moves by many in either direction. 

FX was mixed. AUD, USD and JPY all had some upward bias

CNH/USD is not oversold this week, while the EUR/JPY isn’t overbought.

The larger advancers over the past week comprised of;

Brent Crude 4.2%, WTI Crude 4.6%, Gasoil 4.9%, Lean Hogs 3.3%, Heating Oil 4.9%, Hot Rolled Coil Steel 4.4%, Lumber 2.2%, Tin 5.3%, Nickel 1.8%, Orange Juice 6.5%, Gasoline 2%, Sugar 3.3%, S&P GSCI 2.1%, Urea Middle East 1.9%, Oats 5.9%, MOEX 1.9%, Istanbul BIST 7.7%, Jakarta 2.1%, KRE Regional Banks 1.6% and Chile’s IGPA Index rose 3.1%.

The group of decliners included;

Baltic Dry Index (7.5%), Newcastle Coal (4.8%), Natural Gas (7.6%), Dutch TTF Gas (9.8%), Uranium (2.1%), Soybeans (1.7%), AEX (2.6%), CAC (3.9%), DAX (3.4%), DJ Industrials (2%), MIB (1.6%), HSCEI (3.5%), Hang Seng (2.9%), IBEX (3.6%), KOSPI (1.5%), Nasdaq Biotech’s (2.4%), Nikkei (2.4%), Copenhagen (1.9%), Stockholm (2.8%), Switzerland’s SMI (3.6%), SOX (2.6%), Singapore’s Strait Times (2.1%), FTSE-100 (3.7%) and Australia’s ASX 200 fell 2.2%.

In other equity index news; the S&P 500 fell 1.2%, the Russell 2000 and S&P SmallCap 600 eased 1.3% lower, the S&P MidCap 400 declined 0.8%, Toronto’s TSX retreated 1.6% and Australia’s Small Cap Index dropped 1.3%  

July 8, 2023

by Rob Zdravevski

rob@karriasset.com.au