Macro Extremes (week ending August 27, 2021)

The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.

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

Cocoa

EUR/AUD

Overbought (RSI > 70)

Hot Rolled Coil Steel (for the 48th consecutive week)

Switzerland’s SMI equity index (for the 12th week)

the Nasdaq 100 & S&P 500 index

Amsterdam’s AEX, Copenhagen’s 25 and Helsinki equity indices

and India’s NIFTY 50 equity index

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

cryptocurrency, Cardano

Cattle

Orange Juice

Assets (securities) within my immediate universe which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

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

Korea’s KOSPI equity index

Oversold (RSI < 30)

None

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

None

Notable deletions from last week’s list include;

Italy’s overbought MIB,

the oversold Russell 2000 small cap index which bounced 5% this week,

a range of oversold commodity based currencies

and oversold Chinese equities (those indices rose 2.5% in the past week)

Notes & Ideas:

This past week was a story of rising government bond yields, soaring commodity prices (which is some relief for the many is clear downtrends) while most equity indices advanced.

Although, as the list above shows, not many entrants in the ‘extreme’ category. Many prices are meandering around and (marginal) trade opportunities are to be found in those developing new trends

The DXY and various currencies are worth keeping an eye on too.

The JGB’s are still suggesting ‘risk-on’ for equities are they rise slightly having closed at 0.02%, which is above a resistance line I’m watching. 

Last week, I also wrote about another risk appetite predictor in the U.S. 10 year minus Australian 10 year bond yield spread which is now firmly above an important resistance line.

Equities have every possibility of ‘melting up’ and not down.

There weren’t many decliners in the past week.

It’s a complete turnaround from last week’s sea of red.

The Advancers included Brent Crude 11.7%, WTI Crude 10.6%, Gasoil 9.6%, Heating Oil 10.6%, Natural Gas 14%, Gasoline 4.7%, Aluminium 4%, Gold 2% (its best week since mid-May), Hogs 2.4%, Copper 4.4%, Coffee 5.9%, Cattle 11%, Silver 4%, Corn 3.5% and Soybeans 2.5%…all goes towards explaining the 6% rise in the CRB Index.

Amongst equity indices, the TAIEX 5.3%, Russell 2000 and SOX both rose 5%, the Nasdaq Transports 4.1%, the DJ Transports 2.4%, Nikkei 2.3%, HSCEI 2.4%, Shanghai 2.7%, and the Midcap 400 rose 3.4%.

The most notable mover in crypto land was Cardano rose 7%, compounding last weeks +14% and 52% from the previous week. 

And lastly, Bitcoin is trading 222% above its 200 Week Moving Average, which is lower than last week’s 230% reading and notably higher than the reading of 140% seen 8 weeks ago, while certainly lower when compared to its 466% peak in mid-April 2021.

August 29, 2021

by Rob Zdravevski

rob@karriasset.com.au

Korea raises rates

The Bank of Korea has increased its interest rate by 0.25% to 0.75%.

https://www.reuters.com/business/finance/skorea-seen-delivering-its-first-pandemic-era-rate-hike-2021-08-25/

It’s the first major developed market to increase rates since a few years ago.

Albeit Korea increased its inflation rate expectations, it is the first to cite concern over growing consumer debt posing a risk to the economy.

In my recent posts about Russia, Brazil and Mexico increasing interest rates, their concerns were about the rising cost of living and also pertinent as they are commodity sensitive economies.

These countries don’t have large consumer debt levels, unlike Korea or others appearing in the list below.

So is Australia behind the curve in raising interest rates?

August 26, 2021
by Rob Zdravevski
rob@karriasset.com.au

Don’t you love the herd?

Buy straw hats in winter

Buy umbrellas in summer.

They are cheaper, plentiful and it’s not very trendy.

Here is a story about chasing something ‘hot’ and attractive accentuated with scarcity and marketing. This comes with an accompanying price.

https://www.bloomberg.com/news/features/2021-08-24/fifthdelta-brevan-howard-demand-shows-hedge-funds-are-hot-again?sref=qLOW1ygh

It just stinks !

Another story heard on the road today…..

an accountant tells me that his client was quite impressed with the 21% return his managed fund portfolio achieved, that he gave his financial planner a further $1 million to allocate to the same strategy.

There are a few cognitive bias here to identify.

By the way, this return is not stellar because ‘everyone did’ 19%-29% in the last financial year.

Incidentally, the ASX 200 posted a 24% capital return and 26% if you include dividends.

The financial planner declared he will charge $11,000 for the service of selling (sic: recommending) the appropriate products.

I’m not sure this is value for money? I mean directing money to funds appearing on a product list, meeting the client once a year and ‘rebalancing’ a portfolio in the first week of each July is hardly skillful.

Notwithstanding, the funds themselves have their own costs. Let’s say an average of 0.5%, which the investor doesn’t normally see, as the funds reports its performance as ‘net of fees’.

More amazingly, is that the financial planner deployed 100% of the money in the same week which the investing client remitted the funds.

Isn’t it just superbly fortuitous that on the day that a $1 million became available, that the ‘stars and universe’ signalled an appropriate, prudent and cheap moment to pile in last week.

No sour grapes here. This is how a large part of the financial services industry operates.

My suggestion to the investing retail public is a combination ‘eyes wide open’, ask questions and challenge the advisors thinking.

August 25, 2021

by Rob Zdravevski

rob@karriasset.com.au

How to play inflation

My latest newsletter is here.

https://mailchi.mp/karriasset/how-to-play-inflation

You may choose to subscribe to receive new editions.

Online buying has maxed out

This is one anecdote forming part of my investing roadmap……that we have bought the online “stuff” that we already need. Don’t need another computer, another TV or workout wear.

https://www.afr.com/companies/retail/kogan-scraps-dividend-as-profit-plunges-20210823-p58l98

Other than having accumulated superfluous things, this news also points to where we are 15 months since stimulus cheques and assistance has been handed out.

Bank savings balances have declined.

This doesn’t bode well for Buy Now, Pay Later businesses and those generally involved in consumer purchase lending.

August 24, 2021
by Rob Zdravevski
rob@karriasset.com.au

Macro Extremes (week ending August 20, 2021)

The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.

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

Cocoa

Italy’s MIB equity index

the US 10 year minus Australia 10 year bond yield spread

Overbought (RSI > 70)

Hot Rolled Coil Steel (for the 47th consecutive week)

Switzerland’s SMI equity index (for the 11th week)

the Nasdaq 100 index

Amsterdam’s AEX index

India’s NIFTY 50 equity index

the Copenhagen 25 equity index

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

cryptocurrency Cardano

Assets (securities) within my immediate universe which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

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

AUD/JPY – a stronger Yen was telling us the market was ‘risk-off’

AUD/EUR – a rising Euro prompts converting it back to AUD

NZD/USD – the Kiwi fell 3% against the USD for the week

CAD/USD – continuing the trend of commodity currencies weakening against the USD

KRW/USD – a fall in an export sensitive currency, being the Korean Won

China’s CSI 300 equity index

the Hang Seng equity index 

Brazil’s Bovespa equity index

Korea’s KOSPI (which fell 3.5%)

and most interestingly, the small cap Russell 2000 equity index

Oversold (RSI < 30)

 Chinese Government 10 year bond yield (suggesting bonds where being bought aggressively)

AUD/GBP – telling me that the Pound is strong

the Hang Seng China Enterprises Index

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

AUD/USD, where the AUD fell 3.2% for the week against a strengthening U.S. Dollar

Notable deletions from last week’s list include;

Tin following 16 consecutive weeks of being Overbought 

Australia’s ASX 200 after being Overbought for 4 weeks

the S&P 500

and the Oslo, Stockholm and Helsinki equity indices.

Notes & Ideas:

The sign-off from last week’s Macro Extremes edition was “ What a week is coming up” and indeed it did become so.

Most of the action seen in the past week were in the commodity currencies and in commodity prices themselves. We mainly saw declines in the energy, softs and hard metals. This was accentuated with the large move in the DXY rising above an important resistance line of 93.10 to close at 93.56. 

Other declines were amongst the equities markets where indices were seen falling between 2% and 6% for the week.

Declines were also evident in government bond yields, meaning that aggressive buying of bonds are sympathetic and symbiotic with falling equity prices.

On the topic of bond yields, the Aussie moved from 1.19% down to 1.07%, the Gilts fell from 0.58% to 0.53% and the Kiwi (bucked my last week prediction) to fall from 1.76% to 1.62%. The U.S. 10’s were unchanged. 

Inversely and perhaps as a predictor, the JGB’s were promising for the ‘risk-on’ community as they improved from 0.009% to 0.0170%. This ‘risk-on’ positive premise was mirrored by a big move in the U.S. 10 year minus Australian 10 year bond yield spread, moving from 0.0940% to 0.1850%, which sees it firmly moving above an important resistance line.

When coupling these two last indicators with an Oversold AUD/JPY, it is worth pondering that this week’s decline in equities will be brief and shallow.

This weekly ‘Macro Extreme’ note has previously reported Overbought extremes in equities and commodities and what you’re seeing now is that some are at the beginning of main reversion and others simply trying to develop a new trend. 

The most obvious extremes which I’m currently finding in the market is the depth of oversold in Asian equities namely those associated with Chinese equities.

The decliners over the past week included Tin (7%), Lumber (3%), Gasoil (6.2%), WTI Crude (9.2%), Brent Crude (7.5%), Copper (5.8%), Heating Oil (8.2%), Coffee (2.2%), Nickel (6%), Platinum (3%), Gasoline (10.5%), Silver (3%), Corn (5%), Soybean (6%), Wheat (4.5%), the CRB index (4.6%), the U.S. banking index (3.6%), France’s CAC 40 (4%), China’s CSI-300 (3.6%), the HSCEI (7%), the Hang Seng (6%), Bovespa (2.6%), Nikkei (3.5%), Taiwan’s TAEIX (3.8%) adding to last week’s 3% fall, the SOX (2.4%), the S&P Midcap 400 (2%) and the ASX 200 (2.2%).

Amongst the carnage, the S&P 500 only declined 0.6% for the week.

The only Advancers were the Copenhagen equity index rising 1.4% and the Gold price (as priced in AUD) rose 3.3%.

The most notable mover in crypto land was Cardano which rose 14%, adding to last week’s 52% advance.

And lastly, Bitcoin is trading 230% above its 200 Week Moving Average, which is higher than last week’s 215% reading and notably higher than the reading of 140% seen 6 weeks ago, while certainly lower when compared to its 466% peak in mid-April 2021.

August 22, 2021

by Rob Zdravevski

rob@karriasset.com.au