Macro Extremes (week ending October 27, 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

Australian 3 year government bond yields 

Australian 5 year government bond yields

Swiss and U.K. 10 year government bond yields 

U.S. 5 year bond minus 3 month bill yield spread

Natural Gas

Gold as priced in AUD and CAD

EUR/JPY

Overbought (RSI > 70)

Chilean, Japanese, Turkish and U.S. 10 year government bond yields 

Japanese 5 year government bond yield

U.S. 30 year government bond yields

TBT & TBX

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

U.S. 10 year minus 10 year breakeven inflation rate

Cocoa

Orange Juice

Uranium 

And Rubber

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

Australian 10 year government bond yield

U.S. 20 year government bond yield

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

Copper/Gold Ratio

Shangai Composite

CSI 300 

China A50

Dow Jones Industrials 

Dow Jones Transports

Nasdaq Composite

Spain’s IBEX

KOSPI

Nasdaq 100

ASX 200

S&P 500 

And the Copenhagen, Helsinki and Swiss equity indices 

Oversold (RSI < 30)

TLT

Lithium Hydroxide

Nickel 

JPY/USD

MYR/USD

IDR/USD

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

Nasdaq Biotech Index

Indonesia & Thailand’s equity indices

And the ASX Industrials Index

Notes & Ideas:

Government bond yields fell except in Australia and Japan.

U.S. 5 – 7 year corporate bond yields aren’t overbought this week.

The U.S.10 year minus U.S. inflation rate just eased out of overbought land

And for the 2nd consecutive week, the U.S. 3 month bill isn’t overbought.

Equities continued its slide with another woeful week.

Chinese equities were the odd ones out, rising 1.5%.

The silver lining is that more equity indices are registering oversold extremes.

The CAC, DAX, FTSE 250, IBEX and the DJ Transports are all in 6 week falling streaks.

The latter has declined 19% in13 weeks helping it complete a mean reversion to its 200 week moving average.

The Russell 2000 has fallen for 7 of its past 8 weeks, sinking 9% in the past 3 weeks.

The S&P Small Cap 600 has also eased lower in 7 of tis last 8 week, as it’s now in a ‘new’ 4 week consecutive slide and has sunk 16.5% over the past 13 weeks.

Indonesia’s main index has fallen for the past 5 weeks.

The Nasdaq Biotech index touched its first oversold quinella since May 2022. The Nasdaq 100 and the S&P 500 are at 2.5 standard deviations below their weekly mean for the first time since May and June 2022 respectively.

Copenhagen has registered 7 weekly losses out of its past 9.

The KOSPI Index is at its lowest close since January 2023.

And Stockholm, Toronto’s TSX, the MidCap 400, Singapore’s Strait Times and the ASX 200…..all reverted down to their respective 200 week moving average.

Commodities were mixed, again during the week.

Most energy contracts were weaker while industrial and precious metals firmed. 

Baltic Dry Index isn’t overbought after sliding 24% and breaking its 7 week winning streak.

Inversely, Hot Rolled Coil Steel moved out of its 8 week residence in oversold territory after it rallied 23% in the past week.

Urea prices were amongst the losers for the week while Natural Gas was a notable winner.

Gold (as priced in CAD) has risen 11% over the past 3 weeks. 

Uranium remains overbought for an 11th consecutive week.

while Lithium Hydroxide declining streak extends to 16 consecutive weeks.

Amongst currencies, the Australian Dollar was stronger agains all except the ZAR and THB.

The Loonie was weaker.

The BRL/USD has risen for the past 3 weeks after having declined steadily for the past 3 months to complete its mean reversion.

The GBP/AUD had a bearish outside week.

The JPY/USD is still floating around the extremes.

And the Indonesian Rupiah is in a 8 week losing streak versus the USD.

The larger advancers over the past week comprised of;

Aluminium 1.9%, Cocoa 4.3%, Cotton 2.4%, Lean Hogs 6.8%, Copper 2.3%, HRC 23.2%, Natural Gas 20.1%, Orange Juice 2.1%, Palladium 1.7%, Sugar 1.8%, Dutch TTF Gas 3.8%, Uranium 2.1%, Gold in CAD 2.5%, Oats 5.2%, CSI 300 1.5%, China A50 1.8%, HSCEI 1.8%, Mexico 1.5%, BIST 100 rose 2.6% and the ASX Materials Index rose 0.9%.

The group of decliners included;

Rotterdam Coal (5.8%), Baltic Dry Index (23.6%), WTI Crude Oil (2.9%), Gasoil (5.8%), Heating Oil (3.3%), Coffee (2.6%), LNG (4.2%), Newcastle Coal (4.9%), Nickel (2.1%), Gasoline (2.5%), Urea U.S. Gulf (5.2%), Brent Crude (3.9%), Urea Middle East (7.1%), Corn (3%), Wheat (1.8%), JKM (2.7%), KBW Banks (2.2%), DJ Industrials (2.1%), DJ Transports (6.2%), S&P SmallCap 600 (2.3%), Nasdaq Composite (2.6%), KOSPI (3%), Nasdaq Biotech’s (4.1%), Nasdaq 100 (2.6%), Nifty (2.5%), Russell 2000 (2.6%), S&P Small Cap 600 Value (2.9%), SOX (2.7%), S&P MidCap 400 (2.8%), S&P 500 (2.5%), TAEIX (1.9%), Nasdaq Transports (3.5%), TSX (2%), FTSE 100 (1.5%), ASX 200 (1.1%), ASX Industrials (2.4%) and the ASX Small Caps fell 1.9%.

October 29, 2023

by Rob Zdravevski

rob@karriasset.com.au