Macro Extremes (week ending September 22, 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)

Italian 10 year government bond yield

Australian Coking Coal

CAD/GBP

Oslo’s equity index

Overbought (RSI > 70)

Japanese, Turkish and Russian 10 year government bond yields

U.S. 3 month bill yields

TBT

U.S. 10, 20 and 30 year government bond yields

U.S. 10 year bond yield minus 10 year inflation break-even rate

Cattle

And Turkiye’s BIST 100

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

Uranium

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

Mexico’s equity index

Nasdaq Biotechnology Index 

ASX 200

ASX Small Cap Index

And ASX Industrials Index

Oversold (RSI < 30)

U.S. Mid West Hot Rolled Coil Steel

Lithium Hydroxide

TLT

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

None

Notes & Ideas:

Government bond yields rose modestly, compounding the gains from the last few weeks.

This means we are now starting to see bond yields appear in the overbought category, as seen this week with JGB’s and U.S. longer dated maturities.

The U.S. 2’s are their highest level since July 2006, the 5’s and 7’s are their highest weekly close since August 2007 although the latter didn’t make a new intra-week high. 

The U.S. 10’s are their highest weekly close since September 2007.

The U.S. 30’s saw their yield close at their highest since April 2011.

 The anomaly to rising yields was bucked in the U.K., where their yields fell. To boot, those yields aren’t making new highs and the 5’s are in a 4 week losing streak and closing in on a directional trend change. 

And I wanted to note that the spread between the Aussie 5’s minus 90 day bank bill swap rate is (0.08%).

Equity indices had a poor week across the board with the exception of Chinese equity bourses.

The Russell 2000 has fallen 6 of its past 7 weeks and the S&P Small Cap 600 completed a mean reversion.

Indonesia’s market is nearing a new bullish trend.

And the Philadelphia Semiconductor Index has fallen 9% over the past 3 weeks.

Commodities were mainly weaker with energy prices taking a break (with the exception of LNG prices) as the CRB broke its 4 week rising streak.

Rubber, Cocoa, Russia’s MOEX and India’s Nifty are no longer overbought.

Orange Juice closed at an all-time high.

Sugar is at its highest close since October 2011 within a 5 week winning streak.

Most other agricultural’s had a woeful week.

U.S. Mid West Hot Rolled Coiled Steel has been oversold for 4 weeks.

Oats and Soybeans mean reverted with the latter declining for 4 consecutive weeks, while Lithium Hydroxide declining streak extends to 12 consecutive weeks.

The Baltic Dry Index has soared 44% in the past 3 weeks.

Australian Coking Coal and Uranium have their 11 week winning streak intact.

While Cocoa closes below last week’s 46 year high and breaks a 5 week winning streak.

And I’ll watch the development of an early upward trend in AUD and USD priced Silver. 

Amongst currencies, the Australian Dollar and the Canadian Dollar were firmer this week, again.

The Aussie was stronger against all except for the ZAR and CAD.

The AUD/THB pair competes its 4 week consecutive week of advance.

The Canadian Loonie is one a 5 week winning streak vs, the EUR and the GBP.

The USD was stronger except against the CAD and SEK, as the DXY extends its rising streak to 10 weeks.

That same 10 week streak exists in the U.S. Dollar versus the Danish Krone.

The GBP/USD has fallen in 8 of its past 10 weeks.

And the EUR was mixed, while the EUR/USD is in a 10 week losing streak.

The larger advancers over the past week comprised of;

Baltic Dry Index 15.4%, JKM LNG 13.3%, Tin 1.7%, Orange Juice 3.1%, Silver 2.3%, Dutch TTF Gas 9.1%, Uranium 4.2%, Silver in AUD 2.1% and China’s A50 rose 2.2%.

The group of decliners included;

Cocoa (4.7%), WTI Crude (2%), Lean Hogs (1.9%), Copper (2.7%), Heating Oil (1.7%), Coffee (5%), Nickel (3.5%), Brent Crude (2.1%), Gasoline (5.2%), Oats (11.3%), Rice (2.4%), Soybeans (3.3%), Wheat (4.1%), KBW Bank Index (4.6%), CAC (2.6%), DAX (2.1%), DJ Industrials (1.9%), DJ Transports (2.3%), Bovespa (2.3%), S&P Smal Cap 600 (3.4%), MOEX (3.3%), Nasdaq Composite (3.6%), KRE Regional Bank Index (5.8%), KOSPI (3.6%), S&P MidCap 400 (2.8%), Nasdaq Biotech (2.8%), Nasdaq 100 (3.3%), Nikkei 225 (3.4%), NIFTY (2.6%), Copenhagen (1.7%), Helsinki (1.8%), Russell 2000 (3.8%), Sensex (2.7%), SMI (1.6%), SOX (3.2%), S&P 500 (2.9%), Chile (2.8%), Straits Times (2.3%), TAEIX (3.4%), TSX (4.1%), ASX 200 (2.9%), ASX Materials (3.1%), ASX Industrials (2.1%) and ASX Small Caps fell 3%.

September 24, 2023

by Rob Zdravevski

rob@karriasset.com.au