Macro Extremes (week ending July 14, 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)

Canadian 10 year government bond yield

Lumber

Oats

Dow Jones Transports

Nasdaq Transports

S&P MidCap 400 

NZD/USD

SGD/USD

KRW/USD

AUD/USD

AUD/INR

Overbought (RSI > 70)

Australia 2 & 3 year government bond yields 

Russian 10 year government bond yields

U.S. 3 month bill yields

Cocoa 

Cattle

GBP/JPY

MXN/USD

Nasdaq 100

Nasdaq Composite Index

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)

EUR/USD

GBP/USD

DKK/USD

Turkiye and Chile’s equity indices

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

U.S. Dollar Index

Oversold (RSI < 30)

Brazilian 10 year government and yield 

Newcastle Coal

JPY/GBP

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

None 

Notes & Ideas:

Equities had a strong week, more than recovering the previous week’s decline.

We saw a bullish outside reversal week for the Nasdaq 100 and the ASX 200.

Chinese equities are attracting some of my attention.

Nasdaq 100 is overbought for the 8th straight week

The Nasdaq Composite returns to being overbought, as did the Istanbul and Santiago bourses.

The Nikkei 225 had a subdued week, rising the smallest margin of 0.01%.

While the Russell 2000 and the S&P 500 are nearing overbought levels and the KRE Regional Banks Index has risen 9% over the past 3 weeks.

Government bond yields fell with many easing from some multi-year highs.

While for others, this weeks decline meant that they are still short of yield highs seen several months ago, such as the U.S. 10 year bond which hasn’t traded traded above its October 2022 4.34% level.

The Australia 2 year government bond yields aren’t overbought.

But the Canadian 10 year were during the week when they were trading at 3.72% before closing at 3.37%.

And various curves and spreads moved out of oversold territory such as the Australian 10 year minus 2 year yield spread.

The U.S. 10 year yield minus U.S. 10 year inflation breakeven rate had an outsider bearish week, as did the British 2 year bond.

The intra-week swing in the latter saw it move from a high of 5.77% to a low of 5.04%. It closed at 5.19%.

And inversely, the Brazilian 10 year yields rose from their lowest yield levels since August 23, 2021.

Commodities were overwhelmingly positive.

Shipping Rates, Silver and Platinum were the best performers, while LNG Gas and Coal contracts were the heavy losers.

The latter are now in or nearing oversold land.

Lean Hogs are no longer at extended heights, while Cattle makes a return to overbought territory.

Oil continues a rise hitting a 3 week streak and WTI posting a 8% since then.

Over the same time, Middle Eastern Urea prices have climbed 16%.

Dutch TTF Gas has sunk 32% over the past 2 weeks, giving up much of the previous months rally.

And Palladium and Corn performed a bullish outside reversal week.

Currencies were active.

Weakness in the U.S. Dollar dominated trade for the week.

So much so, the U.S. Dollar Index (DXY) made a return to oversold territory for the first time since December 2020.

Inversely, the Australian Dollar saw strength and this week it’s at overbought extremes against the USD.

And a host of currency pairs returned to this week’s extremes list.

The larger advancers over the past week comprised of;

Baltic Dry Index 8%, Brent Crude 1.8%, WTI Crude 2.2%, Copper 3.8%, Lumber 7.5%, Cattle 1.9%, Palladium 2.2%, Platinum 7.1%, Gasoline 2%, Sugar 3.4%, Silver 8.1%, S&P GSCI 1.9%, CRB Index 2.4%, Urea U.S. Gulf 4.1%, Urea Middle East 2.3%, Silver in AUD 5.7%, Corn 3.6%, Soybeans 4.1%, CSI 300 1.9%, AEX 3.4%, KBW Banking Index 1.9%, CAC 3.7%, DAX 3.2%, DJ Industrials 2.3%, DJ Transports 1.7%, MIB 3.2%, HSCEI 5.8%, Hang Seng 5.7%, IBEX 2.1%, Nasdaq Composite 3.3%, KOSPI 4%, S&P MidCap 400 2.7%, Nasdaq Biotechs 3%, Nasdaq 100 3.5%, Copenhagen 1.7%, Russell 2000 3.6%, Swiss SMI 2.2%, SOX 4.8%, S&P 500 2.4%, Singapore’s STI 3.5%, TAIEX 3.7%, TSX 2.2%, FTSE 100 2.5%, ASX 200 3.7%, Istanbul 4.6%, KLSE 2.5%, Thailand’s SET 1.8%, KRE Regional Banks 4%, S&P SmallCap 600 3.1% and Chile’s IGPA rose 3%.

The group of decliners included;

Rotterdam Coal (10.5%), DXY (2.3%), Iron Ore (3.4%), Lean Hogs (5.9%), JKM LNG (11.6%), Newcastle Coal (4.8%), Dutch TTF Gas (24.5%) and Oats fell 3%.

July 16, 2023

by Rob Zdravevski

rob@karriasset.com.au