Macro Extremes (week ending October 13, 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 bond minus 2 year yield spread

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

Baltic Dry Index

Gold Volatility Index

Natural Gas

JKM LNG 

Overbought (RSI > 70)

Chilean and Turkish 10 year government bond yield

U.S. 20 year government bond yield

U.S. 3 month bill yields

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

Orange Juice

Rubber

Uranium

Australian Coking Coal 

USD/CLP

USD/JPY

USD/IDR

And Russia’s MOEX

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

None

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

Copper/Gold Ratio

Lean Hogs

Nickel

Palladium

Dutch TTF Gas

BRL/USD

MXN/USD

Indonesia 

Mexico

SET

And ASX 200 Industrials

Oversold (RSI < 30)

U.S. Mid West Hot Rolled Coil Steel

Lithium Hydroxide

JPY/USD

CLP/USD

IDR/USD

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

None

Notes & Ideas:

Government bond yields fell, notably, everywhere……breaking multi week rising streaks such as the 5 week run seen in the U.S. 10 year bond.

The global wave of last week’s overbought government bond yields (and ETF’s) are not in this week’s list.

U.S. 5-7 year corporate bond yields aren’t overbought anymore.

Equity indices has a subdued week, however the bias was slightly higher, giving investors a little bounce from last week’s weakness.

So much so, that all of the stock indices appearing as oversold in last week’s edition, are no longer so.

Small and Mid Caps are exhibiting most of the weakness, while Asian markets are showing some resilience, led buy the Nikkei 225.

The Russell 2000 has fallen 4% over the past 2 weeks and 14% in the last 12 weeks.

The U.S. Regional Banking Index is at its lowest close since late June 2023.

The KOSPI bounced from last week’s oversold reading, which was its lowest close since March 2023.

The FTSE 250 is in a. 4 week losing streak having fallen 6.5% over the past 4 weeks.

Turkiye’s BIST 100 isn’t overbought anymore after spending 12 weeks in that territory.

And Thailand SET Index broke a 5 week losing streak.

For some other reference, the S&P 600 Small Cap slumped 1%, the Mid Cap 400 eased 0.6% and the Nasdaq Composite fell 0.2%.

The S&P 500 rose 0.5%, the Nasdaq 100 squeezed out a 0.2% advance, the Dow Jones Industrials improved 0.8% and the ASX 200 climbed 1.4%.

The Commodities Indices rose during the week, led by the weighting of the energy and precious metals prices, thus reversing the weakness seen last week.

The Baltic Dry Index and Orange Juice have risen for 6 consecutive weeks.

Gold (as priced in CAD) rose 5% for the week which put an end to its 5 week losing run.

Nickel ended its 4 losing streak. 

Silver nearly recovered all of it slump over the previous fortnight. 

Natural Gas fell 3% after soaring 25% in the previous 2 weeks.

Uranium remains overbought for an 9th consecutive week.

Orange Juice rose 2% and closed at another new all-time high.

U.S. Mid West Hot Rolled Coiled Steel has been oversold for 7 weeks.

Soybeans broke its 6 weeks losing streak, while Lithium Hydroxide declining streak extends to 14 consecutive weeks.

And Australian Coking Coal maintains a 14 week winning streak.

Amongst currencies, the Australian Dollar was weaker again.

Last week, I wrote that it was weaker except agains the THB. This week, the AUD broke its 6 week winning streak against the Thai Baht.

The Canadian Loonie formed.

The CHF/AUD is heading back towards overbought territory.

The Euro is close to being oversold.

The MYR/USD is in a 7 week losing streak.

And the USD/INR continues its 6 week winning streak.

The larger advancers over the past week comprised of;

Rotterdam Coal 12.7%, Bloomberg Commodity Index 2.7%, WTI Crude 5.9%, Gasoil 6.8%, Heating Oil 10.7%, Coffee 6.1%, Lumber 2.7%, LNG JKM 28.6%, Tin 2.3%, Newcastle Coal 6.5%, Orange Juice 2.3%, Gasoline 3.3%, S&P GSCI 3.5%, CRB Index 2.6%, Dutch TTF Gas 41.6%, Brent Crude Oil 7.7%, Silver in AUD 6.6%, Silver in USD 5.2%, Gold in AUD 7%, Gold in CAD 5.4%, Gold in USD 5.5%, Wheat 2%, HSCEI 2.4%, Hang Seng 1.9%, KLSE 1.9%, KOSPI 2%, NKY 4.3%, Oslo 4.8%, Stockholm 1.7%, Chile 2.3%, TAEIX 1.6%, FTSE 1.4%, ASX Materials 2.5% and ASX Small Caps rose 1.8%.

The group of decliners included;

Aluminium (2.1%), China Coking Coal (6.2%), Lean Hogs (5.5%), Natural Gas (3.1%), Urea U.S. Gulf (2.6%), Oats (9.6%), KRE (1.6%), BIST (4.2%) and the Russell 2000 fell 2%.

October 15, 2023

by Rob Zdravevski

rob@karriasset.com.au