Macro Extremes (week ending April 5, 2024)

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 yield minus German 10 year yield

U.S. 10 year yield 

Aluminium

Bloomberg Commodity Index

WTI Crude Oil

Copper

S&P GSCI 

Brent Crude Oil

Silver in USD

AUD/JPY

AUD/THB

USD/IDR

USD/SEK

USD/PHP

USD/BRL

MXN/USD

COP/USD

And Britain’s FTSE 100 Index

Overbought (RSI > 70)

Russian 10 year bond yield 

Cocoa

Coffee (Robusta)

AEX

KBW Bank Index

Budapest

DAX

Pakistan’s KSE

Italy’s MIB

Nifty 50

TAIEX

Toronto’s TSX

BIST 100

And the S&P 500 Index

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

Coffee (Arabica)

Biodiesel

CRB Index

Silver in AUD

Gold in AUD, CAD, CHF, EUR, GBP, USD and ZAR

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

Australia 10 year yield minus U.S. 10 year yield

North European Hot Rolled Coil Steel (HRC)

Lumber 

Oats

Rice

CHF/AUD

Oversold (RSI < 30)

Chinese 10 year government bond yields

Lithium Hydroxide

Iron Ore

Shanghai Rebar

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

Australian Coking Coal

Chinese Coking Coal 

Notes & Ideas:

For the week, government bond yields rose.

While Chinese and Russian 10 year yields appearing either end of their pendulums, many yields are showing signs of breaking north of their recent sideways pattern.

The Japanese 2’s are amongst the nearest other bond yield to approach an extreme.

And we see some yield spreads appear in this week’s list.

Equities mainly fell for the week, across the world.

Regular readers wouldn’t be surprised about this weeks declines, considering the implied probability that rises when we saw the the long list of overbought equity indices appearing over the past few weeks editions.

The following equity indices dropped out of overbought territory;

KBW Bank Index, CAC 30, IBEX, Dow Jones Industrial Average, Nasdaq Composite, S&P MidCap 400, Vietnam,  Nasdaq Transports & the Philadelphia SOX and the Nikkei 225.

The latter fell 3.4% of the week.

Oslo is in a 6 week winning streak, while Mexico’s main index has put together 4 weeks of consecutive higher prices. 

Toronto’s TSX extends its winning streak to 8 weeks.

The DAX broke 8 week winning streak and Italy’s MIB broke its 9 week rising run. Both these indices joined the Nasdaq 100, SMI, ASX 200 and SOX in performing an bearish outside reversal week. 

Commodities were generally higher and it is where most of the week’s action was.

The major commodity indices have returned to overbought status, mainly driven by the energy and the industrial and precious metals.

Gold prices across various currencies remains overbought, with their weekly performances listed below.

Renewed media noise about the rise in oil and copper prices coincides with them trading at overbought extremes.

Coffee prices were there largest gainers for the week. Arabica played catch up to Robusta Coffee, the latter having risen 22% over the past 6 weeks.

Prices related to steel production such as coking coal, iron ore, rebar, are all in oversold territory.

The “coking coals” have fallen for 7 straight weeks, with Australian Coking Coal prices falling 32% over that time.

The Baltic Dry Index has slumped 35% over the past 3 weeks.

While U.S. Midwest Hot Rolled Coil Steel is approaching oversold territory, the North European price did so, this past week.

Crude Oil, Copper, Tin and Silver moved out of overbought territory.

Rice has fallen for 6 consecutive weeks and its price has declined 15% over that time.

Oats are oversold and have produced a 35% decline from their overbought extreme seen in August 2023.

Cocoa has been overbought for 24 weeks.

Aluminium has risen for 6 straight weeks.

And Lithium Hydroxide has now spent 39 consecutive weeks in weekly oversold territory.

Currencies saw a bit more activity this week, with a few more currencies return to the ‘extremes’ list.

The AUD rose.

The CAD was weaker as was the Yen. 

The Euro was mainly firmer, reversing last week’s weakness.

The British Pound was mixed for the week.

The USD was also mixed as we see it exhibit ‘extreme’ strength versus the  Indian Rupee, Swedish Krona, Philippine Peso and Brazilian Real yet it is trading at ‘extreme’ weakness against the Colombian and Mexican Peso’s.

In fact, the USD has risen for 5 straight weeks against the BRL.

And the Kiwi has declined for 6 consecutive weeks versus the Aussie.

The larger advancers over the past week comprised of;

Aluminium 4.9%, Bloomberg Commodity Index 3.4%, WTI Crude 4.5%, Lean Hogs 3.1%, Copper 5.7%, Heating Oil 5.7%, Coffee 12.5%, Nickel 6.4%, Platinum 2.1%, Gasoline 2.5%, Biodiesel 5%, Robusta Coffee 8.3%, Raw Sugar 2.2%, S&P GSCI 3.3%, CRB Index 2.5%, Brent Crude Oil 4.5%, Gasoil 6.5%, Silver in AUD 9.1%, Silver in USD 10.1%, Gold in AUD 3.3%, Gold in CAD 4.7%, Gold in CHF 4.4%, Gold in EUR 3.9%, Gold in GBP 4.2%, Gold in USD 4.3%, Budapest 1.8%, Egypt 3.4%, MOEX 1.9%, Oslo 1.8% and Turkiye’s BIST 100 climbed 5.2%.

The group of largest decliners from the week included;

Australian Coking Coal (7.7%), Baltic Dry Index (10.6%), Cocoa in London (3.4%), China Coking Coal (3.6%), Cotton (5.6%), North Europe HRC (3.7%), Lumber (2.4%), Cattle (3.7%), JKM LNG in Yen (2%), Lithium (9%), Newcastle Coal (2.1%), Palladium (1.4%), Sugar (2.3%), Dutch TTF Gas (2.7%), Urea U.S. Gulf (2%), Corn (1.8%), Oats (7.2%), All World Developed ex-USA (1.3%), KBW Banking Index (2.8%), CAC (1.8%), DAX (1.7%), DJ Industrials (2.2%), DJ Transports (1.8%), MIB (2.1%), IBEX (1.4%), Indonesia (2.6%), S&P SmallCap 600 (2.6%), Russell 2000 (2.8%), KRE Banking Index (4.1%), S&P MidCap 400 (1.9%), Nasdaq Biotech (3.5%), Nasdaq 100 (0.8%), Nikkei 225 (3.4%), Phillipines PSE (2.3%), SMI (2%), SOX (1.8%), Chile (2%), S&P 500 (1%), Nasdaq Transports (1.6%), Vietnam (2.3%), ASX Small Caps (1.7%) and the ASX 200 fell 1.6%.

April 7, 2024

by Rob Zdravevski

rob@karriasset.com.au