Macro Extremes (week ending July 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) 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)

U.S. 10 year breakeven inflation rate

EUR/USD

DKK/USD

KRW/USD

Oats

Lumber

Dow Jones Transports

Nasdaq Transports

S&P MidCap 400

S&P SmallCap 600

Russell 2000

Nasdaq SmallCap 700

Overbought (RSI > 70)

Russian 10 year government bond yields

U.S. 3 month bill yields

EUR/JPY

GBP/JPY

COP/USD

Cocoa 

Cattle

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)

Turkiye’s BIST 100

Chile’s IPSA and IGPA equity indices

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

U.S. Dollar Index

Oversold (RSI < 30)

Brazilian and Chinese 10 year government and yield 

Newcastle Coal

JPY/GBP 

JPY/EUR

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

None 

Notes & Ideas:

Equities were mostly higher for the week, while a little more subdued across the baord. For instance, the amount of those posting an advance of 2% or greater was among the smallest in some weeks.

This shouldn’t be a shock, for 2% weekly variances is the exception rather than the norm.

This week saw the smaller U.S. indices creep into overbought territory, such as the small caps and the Russell 2000 which now join the Nasdaq 100 which has completed its 9th consecutive overbought week.

The S&P 500 is closing in to that area after rising 0.7% for the week.

Chinese and Hong Kong indices were the notable losers for the week, giving up half of last week’s gain. 

The biggest winner was the U.S. Regional Bank Index, again, having now posted a 16% gain over the past 4 consecutive rising weeks.

Speaking of streaks, the KBW Bank index, the Nifty 50, Sensex and Chile’s IPSA have risen for their 4th straight week and Istanbul’s BIST 100 has notched up a 5 week winning streak.

Bond yields mostly fell.

Many yields have eased from their recent upper extremes to simply return to within their 2 standard deviation ranges.

While Australian bond yields aren’t overbought anymore, they still rose for the week, as did the yields in Kiwi and American debt.

Brazilian yields aren’t oversold anymore and the yields for U.K. Gilts have retreated from overbought territory.

And the Japanese 10’s performed the largest percentage decline, with JGB yields closing at 0.42% from last week’s close of 0.48%. 

Commodities were generally higher with energy and agricultural leading the charge.

The Japan/Korean LNG Marker was a stand out, recovering nearly twice of last week’s 11% decline. 

Coffee and Natural Gas had a bullish outside week.

Lumber had a bearish outside week.

Sugar has seen 3 consecutive rising weeks (rising 9% over that time) whist Crude Oil and Gold priced in Canadian Dollars extend their weekly winning streak to 4.

Amongst currencies, the USD firmed.

Bucking the trend, the DKK and KRW have touched overbought levels against the USD, making the cheapest Danish holiday for an American since February 2022.  

The AUD and GBP were generally weaker against their various pairs.

Japanese Yen continues to exhibit weakness as it sees its 6th consecutive week in Oversold territory versus the GBP.

The Mexican Peso (MXN) isn’t overbought against the USD anymore.

The ZAR/USD has its highest close since April 3, 2023

Commensurately, the AUD warned against the ZAR.

And the NZD/AUD had an outside bearish week.

The larger advancers over the past week comprised of;

Rotterdam Coal 6.1%, Cocoa 1.9%, WTI Crude 2.1%, Gasoil 5.2%, Heating Oil 5.2%, JKM LNG 20.2%, Natural Gas 6.9%, Orange Juice 10.1%, Gasoline 5.8%, Sugar 2.6%, S&P GSCI 2.2%, CRB Index 2.1%, Dutch TTF 8.5%, Gold in AUD 1.9%, Corn 4%, Rice 2.6%, Soybeans 2.1%, Wheat 5.5%, KBW Bank Index 6.6%, DJ Industrials 2%, DJ Transports 2.6%, BOVESPA 2.1%, Oslo 2.5%, Copenhagen 1.7%, Nasdaq Transports 2%, FTSE 100 3.1%, Istanbul 3.9%, KRE Banks 7.5%, Chile 2.8% and S&P SmallCap 600 rose 1.6%.

The group of decliners included;

Aluminium (5.6%), Baltic Dry Index (10.3%), Copper (2.7%), Hot Rolled Coil Steel (4%), Lumber (5.9%), Tin (2.1%), Newcastle Coal (6.4%), Silver (1.5%), Shanghai (2.2%), CSI 300 (2%), HSCEI (2.2%), Hang Seng (1.7%) and Philadelphia Semiconductor fell 1.4%.

July 23, 2023

by Rob Zdravevski

rob@karriasset.com.au