Macro Extremes (week ending December 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

IEI

SHY – 1-3 year Treasury ETF

Coffee

Lumber

AUD/INR

AUD/SGD

AUD/USD

CAD/USD

NZD/USD

SEK/USD

Dow Jones Transports

ASX 200

ASX Materials Index

Overbought (RSI > 70)

Cocoa

Uranium

Hot Rolled Coil Steel

Dow Jones Industrials

Nasdaq 100

Philadelphia Semiconductor Index (SOX)

BOVESPA

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

Mexico’s IPC Index

India’s NIFTY and SENSEX equity indices

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

German, U.S. and British 2 year government bond yields 

British 3 year government bond yield

German and British 5 year government bond yield

Canadian, Swiss, German, Spanish, French, British, Portuguese and Swedish 10 year government bond yields

U.S. 5 year bond yield minus the 5 year break-even inflation yield rate

U.S. 5 year minus 3 month yield spread

Oversold (RSI < 30)

Chilean 2 year government bond yield

Greek 10 year government bond yields

Nickel on India’s MCX Exchange

Lithium Hydroxide

CSI 300 Index

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

Sugar

Notes & Ideas:

Government bond yields again fell everywhere, again.

The exception were the rising Canadian and Swiss 10’s.

The Aussie 10’s have fallen for 4 weeks and 7 of the past 8.

In fact, many bond yields are in 4 week losing streaks.

The Greek 10’s have fallen for 6 consecutive weeks.

The South Korean 10’s are in a 9 week losing streak and are classic example of a mean reversion story.

Speaking of which, the U.S. 10 year breakeven inflation rate also mean reverted this week.

Equities were biased higher for the week extending most gains from the preceding 4 weeks.

Most of Europe’s equity indices are possibly showing signs of consolidation as they were subdued for week.

As Spain’s IBEX left ‘overbought extreme’ territory a couple weeks ago, other new entrants have entered that category this week.

The ASX 200 being one of them.

Selected Chinese indices declined again.

Inversely, the Shanghai Composite is nearing an oversold quinella as it closed at its lowest price since May 25, 2020.

Chile and the S&P MidCap 400 have also risen for the past 6 weeks. 

The Russell 2000 is in a 6 week winning streak and has risen 7 of the past 8 weeks compiling a 29% over that time.

The Nasdaq Composite, the S&P 500 and Copenhagen’s OMX 25 have completed 8 consecutive rising weeks.

Mexico’s IPC Index leads the pack with a 9 weeks of positive gains.

While India’s SENSEX broke its 7 week winning streak 

And the SOX is at an all-time high.

Commodities were mixed.

The Commodity indices rose slightly and aren’t oversold this week.

Broadly energy and metals rose while grains and ‘softs’ declined.

JKM KLNG has moved out of last week’s oversold position.

Aluminium has risen 8% in the past fortnight.

U.S. Midwest Hot Rolled Coil Steel has spent its 4th week on overbought territory. 

Orange Juice has fallen 23% over 5 straight losing weeks. (Note: it was overbought prior to this decline)

Platinum completed its (upward) mean reversion.

Sugar has tanked 26% in its 7 week losing streak.

Amongst currencies, the U.S. Dollar saw general weakness.

The Australian Dollar was firmer, again.

The AUD/JPY broke a 3 week losing streak, perhaps aiding the risk-on sentiment seen in equities.?

The AUD/USD is at its highest close since July 10, 2023

The CAD & EUR were mostly firmer

And the Yen was weaker.

The larger advancers over the past week comprised of;

Aluminium 3.1%, Cocoa 1.6%, WTI Crude 2.5%, Heisting Oil 1.5%, Coffee 1.9%, Lumber 3.3%, Tin 2%, Natural Gas 4.8%, Palladium 1.8%, Platinum 3.1%, Dutch TTF Gas 3%, Urea U.S. Gulf 1.6%, Brent Crude 2.6%, Uranium 5.5%, Silver 1.5%, Gold 1.7%, China A50 1.5%, BOVESPA 2%, S&P SmallCap 600 2%, MOEX 1.9%, Russell 2000 2.3%, FTSE 250 2.2%, Nasdaq Biotech 1.8%, Copenhagen 2.3%, Helsinki 2%, DJ Transports 2.4%, TSX 1.7% and FTSE 100 rose 1.6%.

The group of decliners included;

Australian Coking Coal (2%), Baltic Dry Index (10.8%), LNG JKM in Yen (5.2%), Lithium (2%), Newcastle Coal (4.2%), Nickel (3.4%), Orange Juice (12.3%), Sugar (6.2%), Urea Middle East (2%), Corn (2.1%), Oats (4.3%), Soybean (1.9%), Wheat (2.1%), HSCEI (3.7%), Hang Seng (2.7%) and Istanbul’s BIST Index fell 6.2%.

December 24, 2023

by Rob Zdravevski

rob@karriasset.com.au

Merry Christmas