Macro Extremes (week ending December 29, 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

SHY – 1-3 year Treasury ETF

Coffee

Platinum

AUD/INR

AUD/SGD

AUD/USD

AUD/ZAR

CAD/USD

EUR/USD

NZD/USD

JPY/USD

SGD/USD

Nasdaq Biotech Index

ASX Materials Index

ASX 200 Index

Overbought (RSI > 70)

Cocoa

Uranium

Hot Rolled Coil Steel

Iron Ore

Dow Jones Industrials

Nasdaq 100

Philadelphia Semiconductor Index (SOX)

BOVESPA

NIFTY 

SENSEX

And Mexico’s IPC Index

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

None

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

British, Portugal, Swedish 10 year government bond yields

TBX

U.S. 5 year minus 3 month yield spread

DXY (U.S. Dollar) Index

USD/MYR

Istanbul’s BIST 100 Index

Oversold (RSI < 30)

Greek and South Korean 10 year government bond yields

Nickel on India’s MCX Exchange

Lithium Hydroxide

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 exceptions were the rising yields of the German, French, Spanish, Italian, Portuguese, Swedish and Greek 10’s. The latter broke its 6 week losing streak.

The Swiss 10’s have risen for the past 2 weeks, since recently being oversold.

The Aussie 10’s have fallen for 5 weeks and have declined for 8 weeks of the past 9.

Many other bond yields are in 5 week losing streaks.

The South Korean 10’s are in a 10 week losing streak and are classic example of a mean reversion story, while the Brazilian 10’s have declined for 8 weeks of the past 10.

Finally, ‘TBT’ the U.S. Bond ETF has fallen for 9 of the past 10 weeks.

Equities were mixed with many indices closing within +/- 0.8% of their previous weeks closing price.

CSI 300 Index are no longer oversold following the lift in Chinese and Hong Kong equities.

However, many streaks continue.

Chile’s and Sweden’s main index are in 7 week winning streaks (the latter is approaching all-time highs), while the Nasdaq Composite stretches its advancing streak to 8 weeks, the S&P 500 and Dow Jones Industrials make it 9 weeks and Mexico’s IPC Index has climbed for 10 consecutive weeks.

Meanwhile, the S&P MidCap 400 and the Russell 2000 both broke their 6 week rising streaks.

And the SOX is at an all-time high.

Commodities were mixed with a slight bias towards declining prices.

Weakness was led by energy, shipping and base metals.

Strength was seen in some industrial metals. Grains and agricultural’s were mixed.

Cocoa had a bearish outside reversal week.

Iron Ore prices have risen 10 out of the past 11 weeks.

Meanwhile U.S. Midwest Hot Rolled Coil (HRC) Steel prices have climbed for 11 consecutive weeks, rising 62% over that time and is in its 5 running week of being an ‘overbought extreme’. (hint: they were oversold prior to that rally commencing)

Uranium broke its 6 week rising trend.

Aluminium has risen 14% over the past 4 weeks.

Orange Juice prices have fallen for 6 consecutive weeks (falling 27% over that time) while Sugar’s declining weekly streak extends to 8.

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

SEK/USD is nearing an overbought extreme and closing in on an (upward) mean reversion. This suggests Swede’s should prepare to sell some of their strong Krona and buy USD. While this should make for holidaying in the United States at its cheapest at anytime over the past 18 months, SEK strength should start to affect the export prospects of Swedish domiciled businesses.

More on this topic in a later note.

The AUD was mostly flat against various pairs, with a slight bias towards lower week over week closing prices, thus taking a break from its recent strength.

The Euro was weaker except against the USD.

The Yen was notably stronger.

Interestingly, while the JPY/USD is appearing in the extremes list this week, it is ‘miles’ away from competing a long-term mean reversion.

The larger advancers over the past week comprised of;

Aluminium 2.5%, HRC 5.7%, Platinum 2.8%, Urea Middle East 1.6%, Oats 7.3%, Wheat 1.9%, KOSPI 2.2%, NIFTY 1.8%, Straits Times 3.2%, TAIEX 1.9%, ASX Materials 1.6%, Shanghai Composite 2.1%, CSI 300 2.8%, China A50 2.2%, HSCEI 5.1% and the Hang Seng rose 4.3%.

The group of largest decliners from the week included;

Rotterdam Coal (8%), Baltic Dry Index (10.8%), Cocoa (2.7%), WTI Crude (2.9%), Lean Hogs (4.3%), Heating Oil (3.7%), JKM LNG (3.6%), Coffee (2.3%), Lumber (2.6%), Lithium (1.5%), Tin (1.5%), Newcastle Coal (2.2%), Natural Gas (3.7%), Orange Juice (4%), Palladium (9.4%), S&P GSCI (1.5%), Dutch TTF Gas (5.3%), Brent Crude (2.3%), Gasoil (5%), Silver in AUD (1.9%) and Silver in USD fell 1.7%.

December 31, 2023

by Rob Zdravevski

rob@karriasset.com.au

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

Don’t trade the headlines, once again !

Once again, my reminder to clients is not to trade the headlines.

Crude Oil spurts 5-7% higher in the past 7 days over some mob in Yemen not many have heard of until the media helps many become familiar with their name, cause or associations, now badgering ships passing through the Red Sea.

Spare me !

The global powers with economic interests will put a stop to it and the companies with a commercial interests will simply cease putting cargoes at risk.

It is at one’s perils if you have gone long Oil and short Shipping, based purely on this headline.

December 20, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending December 15, 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

AUD/EUR

AUD/INR

AUD/SGD

CNH/USD

NZD/USD

KBW U.S. Bank Index

KRE U.S. Regional bank Index

Stockholm

ASX Materials Index

Overbought (RSI > 70)

Cocoa

Uranium

Nasdaq 100

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

Brazil’s BOVESPA

Mexico’s IPC Index

India’s NIFTY and SENSEX equity indices

And the Philadelphia Semiconductor Index (SOX)

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

BoA 5-7 year corporate bond yields

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

British 3 year government bond yield

German, British and U.S. 5 year government bond yield

Canadian, Swiss, German, Spanish, French, South Korean, 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

Bloomberg Commodity Index

S&P Goldman Sachs Commodity Index

Thomson Reuters CRB Index

Sugar

Natural Gas

Brent Crude Oil

GBP/JPY

USD/JPY

USD/SGD

USD/ZAR

And Russia’s MOEX Index

Oversold (RSI < 30)

Chilean 2 year government bond yield

Lithium Hydroxide

CSI 300 Index

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

JKM LNG 

Greek 10 yer government bond yields

Notes & Ideas:

Government bond yields again fell everywhere, again.

And so I emphasis and reflect on the euphoria of weeks ago when the consensus couldn’t possibly allow any probability that interest rates could decline.

For example, 8 weeks ago, the U.S. 5 yer bond yield appeared in this publication as an overbought extreme when it was trading at 5%. Today, that yield is 3.91%. Someone has lost a lot of money ‘shorting’ the hype at the wrong end of the pendulum.

Aussie 10 year yields have fallen 6 of the past 7 weeks as have the New Zealand 10’s and the U.S. 20’s.

The Swiss 10’s have mean reverted.

n.b. maybe its time to lock-ion cheap Swiss borrowing rates soon?

The South Korean 10’s are are in a 8 week losing streak.

And the IEI ETF has posted a 4% capital gain over the past 8 weeks.

Of course, that wouldn’t be good enough anymore, especially when equities have rose 15% over the same time……????

The TLT (20+ year) ETF stock price has risen 18.2% over the past 9 weeks. Prior to this advance, that ETF appeared as an ‘oversold extreme’.

The BoA 5-7 year corporate bond yield is hovering at the same yield as May 2023.

The Canadian 10’s and British 10’s yields at their lowest level since May 2023, British 10’s are back to May 2022 levels and German 10’s are at their lowest since December 2022. 

Equities were mostly higher for the week extending most gains from the preceding 3 weeks.

Some of the weekly gains were impressive.

Inversely, most of Europe’s equity indices finished the week either +/- 0.3% from last week’s close.

Spain’s IBEX fell and so it’s not an ‘overbought extreme’. Other new entrants have entered that category this week.

The Nasdaq 100 being one of them.

Most indices end the week with return of between 1% – 1.6%.

The week that U.S. Banks ’twas larger than the previous week. 

The KRE Regional Banks Index rose 8% for the week and has soared 31% over the past 7 weeks. The market has forgotten about Silicon Valley Bank collapse and all of this analyses about various banks “held to maturity” debt investments…..

It’s now 2.5 standard deviations above its rolling weekly mean.

Chinese indices were mostly lower again, although a couple of them posted gains of 2% for the week. 

The Hang Seng had a bullish outside reversal week as did Malaysia’s KLSE Index.

The CSI 300 is now at the same price as seen in February 11, 2019 while also being in a 5 week losing streak.

The China A50 Index is in a 6 week losing streak and is nearly oversold.

Germany’s DAX is at an all-time high but not yet overbought. Comically, it broke its 6 week winning streak by feebly posting a decline of 0.1% for the week.

The CAC and BOVESPA are also at all-time highs.

The Dow Jones Industrials is a whisker from an overbought quinella. 

The S&P MidCap 400 makes it 5 straight winning weeks.

The following indices have risen for 7 consecutive weeks; AEX, DJ Industrials, Nasdaq Composite and Nasdaq 100, KOSPI, NIFTY, Sensex, Copenhagen and the S&P 500.

The S&P Small Cap 600 was strong but it yet to make a ‘higher high’ but the Russell 2000 did so.

India’s SENSEX seems to be amongst the most extended of bourses, as it trades at 34% above its 200 week moving average.

While all are watching the Nasdaq, Sweden’s OMX Stockholm Index has climbed 17% over the past 17 weeks.

And Mexico’s IPC Index surged 5% to extend its weekly winning streak to 8 as it registers an overbought quinella. Since appearing in the overbought section of this publication, this index has risen 18% during this streak, outperforming the Nasdaq 100 by 4% over that time…..

Commodities were mixed.

Palladium soared 26%. It’s not oversold anymore.

Livestock, Uranium, Aluminium and Coffee were firmer.

Coal, Urea, Gas and Sugar prices were lower.

Grains were muted.

The Baltic Dry Index, Gold and Silver fell out of overbought territory this past week.

Cattle prices momentarily rose, thus removing them from an oversold extreme.

Following a 6 week losing streak (accounting for a cumulative 21% decline), Sugar is now in an oversold trough.

Aluminium had an outside bullish reversal week.

The Bloomberg Commodity Index mean reverted, to its 200 week moving average.

Cocoa broke its 8 week rising streak, yet remains overbought for 8 consecutive weeks.

Newcastle Coal gave up 7% of its previous fortnight gain of 18%.

China Coking Coal has built a 5 week winning streak.

Both WTI and Brent Crude broke their 7 week losing streak rising 0.3% and 1.3% respectively.

Although, Brent Crude is in its 2nd week of an oversold extreme.

Dutch TTF Gas tanked 14% and has now fallen 46% over the past 7 weeks.

Natural Gas fell 3.5% for the week even though it rose 4% during Friday’s session.

Natural Gas has slumped 34% during its 6 week losing streak.

For a 2nd week, the broader commodity indices remain at oversold extremes.

And relatively versus equities they are too.

Non U.S. denominated Gold prices eased for a 2nd week, while Silver caught a bid following last week’s 10% shellacking. 

Orange Juice is in a 4 week losing streak and is trading at 108% above its 200 week moving average.  

Uranium remains overbought for a 18th consecutive week.

Lithium Hydroxide prices are now oversold for 23 consecutive weeks.

JKM LNG has fallen 7 of the past 8 weeks, declining 24% over that time.

And Iron Ore isn’t overbought anymore.

Amongst currencies, the Australian Dollar was firmer, resuming the advances of previous weeks.

The Loonie was higher again, the Euro was mixed again and the Yen was stronger again.

Collectively, the U.S. Dollar was weaker most everywhere.

In fact, against the USD, the Yen is in a 5 week winning streak.

Lastly, the USD/ZAR had a bearish outside reverse week.

The larger advancers over the past week comprised of;

Aluminium 4.7%, China Coking Coal 3%, Lean Hogs 4.4%, Copper 1.6%, Heating Oil 1.5%, Coffee 6.9%, Lumber 1.8%, Cattle 1.7%, Nickel 1.8%, Palladium 26.4%, Platinum 3.6%, Gasoline 4.1%, Gasoil 2.1%, Uranium 4.8%, Silver AUD 1.8%, Silver USD 3.7%, Oats 5.6%, KBW Banks 8.1%, DJ Industrials 2.9%, Dj Transports 5.3%, HSCEI 1.8%, HSI 2.8%, BOVESPA 2.4%, S&P Small Cap 600 5.8%, Russell 2000 5.6%, Nasdaq Composite 2.9%, KRE Regional Banks 8.1%, KOSPI 1.8%, FTSE 250 2.7%, S&P Midcap 400 4%, Nasdaq Biotech 6.1%, Nasdaq 100 3.4%, Nikkei 225 2.1%, NIFTY 2.3%, S&P Midcap 600 (not 400) 5.1%, Stockholm 3.2%, SENSEX 2.4%, Chile 3.2%, S&P 500 2.5%, TAIEX 1.7%, Nasdaq Transports 4.9%, ASX 200 3.4%, ASX Materials 4%, ASX Industrials 2.5%, ASX Small Caps 3.2% and the SOX soared 9.1%.

The group of decliners included;

Rotterdam Coal (4.8%), Baltic Dry Index (2.9%), Cotton (1.9%), DXY (2%), JKM LNG (10.2%), Lithium (1.9%), Newcastle Coal (7.1%), Natural Gas (3.5%), Sugar (5.9%), Dutch TTF Gas (14%), Urea U.S. Gulf (3.2%), Urea Middle East (2.6%), Shanghai Composite (0.9%), CSI 300 (1.7%) and Spain’s IBEX fell 1.3%.

December 17, 2023

by Rob Zdravevski

rob@karriasset.com.au