Macro Extremes (week ending May 31, 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)

German, Spanish, French, British, Greek and Portuguese 10 year government bond yields

British 3 year bond yields

Dutch TTF Gas *

Wheat *

And India’s SENSEX equity index

Overbought (RSI > 70)

Japanese 2 & 5 year government bond yield * 

Russian 10 year government bond yield *

JKM LNG

Biodiesel

Rubber

GBP/JPY

Pakistan’s KSE Index *

Oslo *

and Turkiye’s BIST 100 *

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

Japanese 10 year government bond yield *

Robusta Coffee

Extremes below the Mean (at least 2.5 standard deviations)

Australian 10 year minus Australian 2 year government bond yield spread *

Chilean 2 year government bond yield 

EUR/GBP

Brazil’s BOVESPA equity index

Oversold (RSI < 30)

North European Hot Rolled Coil Steel *

Lumber *

Lithium Hydroxide *

Sugar *

PHP/USD

And Indonesia’s IDX 30 equity index

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

None

Notes & Ideas:

Government bond yields rose, mostly, again.

However, the correlation between the Copper/Gold Ratio was bucked.

The Japanese bond yields all remain at extremes.

Equities were mainly weaker, again.

Many indices fell between the 1% – 1.3% range.

Several more indices dropped out of overbought territory.

The Nasdaq Composite, SENSEX, SOX, the ASX Industrials and Chile’s equity index all performed an outside bearish week.

The Nasdaq Composite, KLSE, FTSE 250, Nasdaq 100, S&P 500 and TAEIX all broke their 5 week winning streak.

Oslo makes another all-time high.

Last week’s weekly outside bearish week for the HSCEI and Indonesia’s IDX resulted in declines of 3.2% and 4.1% respectively.

Commodities were mostly weaker.

Coal, Cocoa, & Coffee all saw strength again.

Robusta Coffee and Cocoa have risen 19% and 25%, respectively over the past fortnight. 

Cotton, Copper, Palladium, Corn, Orange Juice and Lumber were amongst the weakest performers for the week.

Copper has fallen 9% in the past 2 weeks.

Rice has slumped 8% in the past 3 weeks.

The Copper, Platinum, Nickel, Tin and the Copper/Gold Ratio aren’t overbought anymore. The latter is more relevant as a risk on-off indicator.

While Dutch TTF Gad and Wheat make repeat entries in the overbought category.

Lean Hogs broke their 5 week losing streak.

Soybeans broke its 5 week winning streak.

Rubber & Biodiesel are in 5 week winning streaks. 

U.S. Midwest Hot Rolled Coil Steel had an outside bearish week.

Orange Juice fell 8% giving up a part of the 27% advance seen in the prior 3 weeks.

And Lithium Hydroxide has now spent 46 consecutive weeks in weekly oversold territory.

Currencies were quite active for the 2nd consecutive week. 

The Aussie rose agains most, but it didn’t quite make a new high versus the Japanese Yen.

The CHF rose versus the Aussie which reflected the ‘risk-off’ stance for the week.

The Loonie eeked out some gains.

The DXY Index was flat.

The Euro slightly weaker, while the anomaly in the strength in the EUR/GBP, which is now overbought.

The GBP/JPY is in a 4 week winning streak.

We are seeing new weakness in the Philippine Peso against the USD, which is now in a 4 week losing streak.

And the Yen was mostly weaker, again.

The larger advancers over the past week comprised of;

Australian Coking Coal 4.2%, Cocoa 12.1%, China Coking Coal 3.9%, Robusta Coffee 5.9%, Oats 3.1%.

The group of largest decliners from the week included;

Cotton (5.4%), Iron Ore (1.7%), Copper (3.2%), Heating Oil (1.9%), U.S. Hot Rolled Coil Steel (1.8%), Lumber (4.1%), Natural Gas (6.1%), Nickel (2.8%), Orange Juice (8.3%), Palladium (7.3%), Gasoline (2.1%), Uranium (3.2%), Gold in CHF (1,6%), Corn (4%), Rice (3.7%), Soybeans (3.5%), Wheat (2.7%), HSCEI (3.2%), Hang Seng (2.8%), BOVESPA (1.8%), Indonesia (4.1%), MOEX (5.3%), KOSPI (1.9%), Nasdaq 100 (1.4%), NIFTY (1.9%), PSE (3.8%), South Africa 40 (3.2%), SENSEX (1.9%), SOX (1.9%), Chile (2.1%), TAIEX (1.8%) and BIST fell 2.6%. 

And for some reference for Australian readers, the ASX 200 fell 0.3%, ASX Small Caps rose 0.4% and the S&P 500 fell 0.5% for the week.

June 2, 2024

by Rob Zdravevski

rob@karriasset.com.au

Rising net interest expense are still a cross to bear

I am still finding many publicly listed companies around the world whose net interest expense is greater than 40% of their EBIT.

Ah, the fine edge of leverage.

I think that the cost of money won’t abate enough to provide relief that the overly indebted would hope.

Fighting probabilities

When the blue line (the U.S. 10 year yield minus the 10 year breakeven inflation rate) trades above and to some considerable percentage above its 200 week moving average, it results in the S&P 500 either peaking or stifling any further advance.

I think it’s a dangerous equity market.

May 28, 2024

by Rob Zdravevski

rob@karriasset.com.au