Macro Extremes (week ending August 2, 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.

* denotes multiple week inclusion

Extremes above the Mean (at least 2.5 standard deviations)

Belgian, Danish and Finnish 10 year government bond yields

IEF & TLT

U.S. 10 year minus U.S. 2 year government bond yield spread *

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

U.S. 30 year minus U.S. 10 year government bond yield spread *

CHF/AUD *

CHF/USD

CNH/USD

GBP/AUD

JPY/AUD

THB/USD

USD/CAD *

KBW Bank Index *

FTSE 250

ASX 200

Overbought (RSI > 70)

Gold in CAD

NIFTY *

SENSEX *

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

IEI & SHY

Gold in AUD

MYR/USD

ASX Financials Index

Extremes below the Mean (at least 2.5 standard deviations)

2 year German bond yields

3 year British bond yields

5 year government bond yields for Australia, Germany, Great Britain and the U.S.

7 year U.S. bond yields

10 year Austrian, Canadian, Chilean, Swiss, German, Spanish, British, Dutch, Norwegian, Polish, Portuguese, Swedish and American government bond yields.

U.S. 20 and 30 year government bond yields

U.S. 5-7 year corporate bond yields

TBT & TBX

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

U.S. 5 year bond yield minus the 3 month break-even inflation rate

U.S. 5 year bond yield minus the U.S. inflation rate

Bloomberg Commodity Index

S&P GSCI Index

CRB Index

AUD/GBP *

AUD/THB

AUD/ZAR

CAD/EUR *

CAD/USD

USD/CNH

USD/JPY

USD/SGD

Italy’s MIB Index

Oversold (RSI < 30)

10 year South Korean government bond yields

U.S. 10 year break-even inflation rate

Cotton

North European Hot Rolled Coil Steel *

U.S. Midwest Hot Rolled Coil Steel *

Lithium Hydroxide *

Corn *

Soybean

BRL/USD *

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

10 year Chinese government bond yields 

2 year British and American bond yields

U.S. 5 year breakeven inflation rate

U.S. 3 month yields

Shanghai Rebar

Notes & Ideas:

Government bond yields fell, notably.

The exception were Belgian, Danish and Finnish yields.

The Chilean, Canadian, Greek and Italian yields are in a 5 week losing streak.

The copper/gold ratio has also trended lower, mimicking the direction of bond yields,

And the South Korean 10 year yield has mean reverted.

Equities fell everywhere except in Australia.

The Philadelphia Semiconductor (SOX) Index fell 10% for the week. 

U.S. Small & Mid Cap indices fell 6%.

It was a rough week for equities.

Many indices which appeared in overbought territory over the past few weeks are no longer there.

Hungary’s BUX and the Nasdaq Biotechnology Index are no longer overbought.

The former breaking its 6 week winning streak.

The KOSPI and Nasdaq 100 are in 4 week losing streaks.

The Nikkei 225 and SOX have declined 14% and 22%, respectively over the past 3 weeks.

The U.S. Regional Banks Index fell 9% giving back one-third of the 26% advance seen in its previous 6 weeks.

The Dow Jones Industrials, S&P Smallcap 600, Russell 2000, Oslo, SMI and DJ Transport were amongst a host of equity indices which performed a bullish outside reversal week.

And India’s NIFTY and SENSEX are making new all-time highs.

Commodities were mostly weaker, again.

Thermal Coal, JKM LNG, Dutch TTF Gas, Nickel, Gold, Wheat and Tin prices bucked that trend.

The long list of losers appear below.

Iron Ore and Sugar have fallen for 5 straight weeks.

While Crude Oil, Copper and Palladium prices are in a 4 week losing streaks.

Lean Hog’s broke their 4 week winning run.

Copper and Brent Crude have both fallen 12% respectively over the past 5 weeks.

Tin has declined 12% in the last fortnight.

Natural Gas have fallen for 7 of the last 8 weeks.

Aluminium has sunk 19% over the past 10 weeks.

Gold as priced in CAD and AUD appear in this weeks overbought category after having climbed for the past 5 and 6 weeks, respectively.

And Lithium Hydroxide has now spent 55 consecutive weeks in weekly oversold territory.

Currencies continue to provide action, again and again.

The Aussie was weaker, again and has fallen for 4 or 5 consecutive weeks against most currencies.

CAD/EUR is in a 6 week losing streak.

Euro was firmer against most, again.

The EUR/AUD is in a 4 week winning streak, although the Euro has declined for 4 weeks agains the Yen.

The Yen was strong for another week, as risk was shunned in the equities market.

In fact, since being recently overbought, the AUD/JPY has seen a decline of 11% in the past 12 weeks. It fell 5% in the past week, alone.

The AUD/JPY and GBP/JPY have fallen for 4 straight weeks.

And the DXY Index is very close to being 2.5 standard deviations below its 20 week average.

The larger advancers over the past week comprised of;

Rotterdam Coal 6.4%, JKM LNG 2.6%, JKM in Yen 3.8%, Newcastle Coal 4.3%, Nickel 2.9%, Platinum 2.5%, Tin 2,8%, Dutch TTF Gas 9.9%, Silver in AUD 2.8%, Silver in USD 2.3%, Gold in AUD 2.9%, Gold in CAD 2.6%, Gold in EUR 1.8%, Gold in GBP 2.8%, Gold in USD 2.3%, Gold in ZAR 2.2% and Wheat rose 3%.

The group of largest decliners from the week included;

Australian Coking Coal (6.4%), Aluminium (2.2%), Baltic Dry Index (7.4%), China Coking Coal (4.7%), WTI Crude (4.7%), Heating Oil (4.9%), U.S. Hot Rolled Coil Steel (4.1%), Lumber (1.8%), Cattle (3.4%), Lithium (3.9%), Natural Gas (4.1%), Orange Juice (2.5%), Gasoline (4.1%), Shanghai Rebar (5.7%), Robusta Coffee (1.7%), Raw Sugar (1.7%), White Sugar (3.3%), S&P GSCI (3%), CRB Index (2.8%), Brent Crude (2.8%), Gasoil (3.2%), Corn (2%), Rice (1.9%), Soybean (2%), All Developed World ex USA (2%), Amsterdam’s AEX (3.1%), ATX (3.9%), KBW Bank Index (7.8%), CAC (3.5%), DAX (4.1%), DJ Industrials (2.2%), DJ Transports (3.4%), MIB (5.3%), IBEX (4.4%), S&P SmallCap 600 (5.6%), Russell 2000 (6.8%), TAEIX (2.2%), Nasdaq Composite (3.4%), KRE Regional Banks Index (9.1%), KOSPI (2%), FTSE 250 (2.5%), S&P MidCap 400 (4.3%), MOEX (3.6%), Nasdaq Biotech Index (3.5%), Nasdaq 100 (3.1%), Nikkei 225 (4.7%), Oslo (1.8%), Helsinki (2%), Stockholm (4.3%), PSE (1.8%), Prague (1.8%), SMI (3%), SOX (9.7%), Chile (1.8%), S&P 500 (2.1%), Tel Aviv  (3.3%), Nasdaq transports (4.6%), TSX (2.6%), BIST (3.9%)and Poland’s WIG Index fell 2.5%. 

August 4, 2024

by Rob Zdravevski

rob@karriasset.com.au