Macro Extremes (week ending August 18, 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)

German, Swedish, Spanish and French 10 year government bond yields

TBT

LNG and JKM LNG 

Orange Juice 

CAD/AUD

Overbought (RSI > 70)

U.S. 3 month bill yields

Uranium

GBP/JPY

And Turkiye’s BIST 100

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

U.S. 20 and 30 year government bond yields

CHF/AUD

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

LTLT

IDR/USD

INR/USD

Amsterdam’s AEX

and Stockholm 30 equity index

Oversold (RSI < 30)

Lithium

NZD/USD

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

Chinese 10 year government bond yields

AUD/GBP

AUD/EUR

AUD/CHF

Notes & Ideas:

Equities broadly fell, for a 3rd week. This shouldn’t be a surprise for many indices appeared as ‘overbought’ within this newsletter in the preceding 4 weeks.

The declines amongst equities were sizeable. No equity indices amongst my universe rose during the past week.

Although, European and American indices fell as much, if not more than Chinese counterparts, which would be contrary to how the financial media framed it.

The Nasdaq Composite is at its lowest close since 10 weeks ago, while Helsinki’s OMX 25 Index is very near an oversold reading.

The SOX has sunk 10.5% in the past 3 weeks weeks, while the the Nasdaq has fallen 7.3% and the China’s CSI 300 eased 5.7% over the same timeframe.

And finally, the ASX Small Caps fell less than others.

Commodities were mixed.

Oil and Gas were generally weaker, with the exception of the bounce seen in LNG.

Incidentally, JKM LNG has risen 36% over the past 2 weeks.

Some metals saw weakness, yet Uranium is overbought.

Agricutural’s caught a bid, while Coffee is nearing oversold territory

WTI Crude and Gasoil saw their 7 week winning streak come to an end.

Heating Oil continues its rising run to its 8th week while Silver is in a 5 week losing streak.

In currencies, the AUD was weak everywhere again and is in its 5th week of losses versus the USD.

The AUD/EUR and the AUD/GBP pairs saw their lowest closing prices since April 2020.

And there are many streaks abound….

Amongst weekly losing streaks, the AUD/EUR is in its 9th, the SEK/USD is at 5 weeks, as is the EUR/USD and the CAD/USD, the AUD/CHF is at 9 weeks and the CLP (Chilean Peso)/USD has declined for 7 consecutive weeks and 9 of it the past 10 weeks.

The winning streak favours the U.S. Dollar as referenced by the DXY Index in its 5 week winning tear.

Bond yields rose again albeit less than the media may have been implying. 

In fact, many yields are yet to make new new highs and in some case there are mixed signals, such as the U.S. 7’s and 10’s which have reached a new weekly closing high but they haven’t broken the intra-week highs seen in October 2022.

Brazilian, Japanese and New Zealand bond yields rose the most. For example (week over week), Brazilian 10’s moved from 10.77% to 11.20%, JGB’s rose from 0.59% to 0.63% and Kiwi 10’s climbed from 4.87% to 5.05%.

Notably, longer dated U.S. Treasuries are appearing in the overbought quinella category this week and a bunch of European 10 year bond yields are making their first visit to overbought territory since September 2022.

And Chinese 10 year yields are at their lowest close since April 2020.

The larger advancers over the past week comprised of;

Baltic Dry Index 9.6%, Cocoa 2.7%, Heating Oil 1.7%, Lumber 7.8%, JKM LNG in Yen 28%, Orange Juice 8.1%, Dutch TTF Gas 3.1%, Uranium 2.8%, Silver in AUD 1.7%, Oats 5.6%, Soybeans 3.5%, Wheat 2% and JKM LNG in USD climbed 25.9%.

The group of decliners included;

Brent Crude (2%), WTI Crude (2.8%), Cotton (4.9%), Coffee (4.9%), Lithium (4%), Natural Gas (7.9%), Nickel (2.5%), Palladium (3.8%), Gasoline (12.3%), Sugar (2.3%), Shanghai (1.8%), CSI 300 (2.6%), AEX (3.9%), KBW (5.6%), CAC (2.4%), DJ Industrials (2.2%), DJ Transports (3.1%), MIB (1.8%), HSCEI (6%), Hang Seng (5.9%), IBEX (1.8%), Bovespa (2.3%), Nasdaq Composite (2.6%), Kospi (3.4%), S&P MidCap 400 (3%), Nasdaq Biotech Index (2.2%), Nasdaq 100 (2.2%), Nikkei 225 (3.2%), Oslo (1.9%), Copenhagen (2.4%), Helsinki (2.2%), Stockholm (2.6%), Russell 2000 (3.5%), SMI (2.2%), S&P 500 (2.1%), STI (3.7%), TSX (2.9%), FTSE 100 (3.5%), ASX 200 (2.6%), ASX Small Caps (2.2%), KRE Index (6.4%), S&P SmallCap 600 (3.3%), Chile (2%) and Istanbul BIST 100 fell 2.6%.

August 20, 2023

by Rob Zdravevski

rob@karriasset.com.au