Macro Extremes (week ending September 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)

Australian Coking Coal

Oslo’s equity index

Overbought (RSI > 70)

Turkish and Russian 10 year government bond yields

U.S. 3 month bill yields

Cocoa

Cattle

Rubber

Russia’s MOEX

India’s Nifty

And Turkiye’s BIST 100

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

Uranium

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

Mexico and Copenhagen’s equity index

Oversold (RSI < 30)

U.S. Mid West Hot Rolled Coil Steel

Lithium Hydroxide

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

None

Notes & Ideas:

Government bond yields rose modestly, extending last week’s move.

However, they have mostly traded sideways for several months, failing to make new highs.

The exception is in the Japanese 10’s. The U.S. 10’s are close to doing so.

Equity indices had a good week, particulate those in Europe and Asia.

Although the major U.S. indices were subdued. The Dow Jones Industrials, Russell 200 and S&P 500 declined 0.2% for the week. The Nasdaq Composite, MidCap 400 and Nasdaq 100 fell 0.5%. The Small Cap 600 rose 0.2%.

Positively, the KOSPI, Nikkei 225, TAIEX, Singapore’s Strait Times and Chile all posted bullish outside reversal weeks.

The latter broke its 6 week losing streak.

Inversely, Istanbul’s BIST 100 performed an bearish outside reversal week

The ASX 200 recovered all of last week’s decline.

And the Philadelphia Semiconductor Index was down 2.5% for the week, mainly due to Friday’s 3% drop.

Commodities were mainly firmer with energy prices continue to have a starring role.

For example, Brent Crude has risen 10 of the past 12 weeks, climbing 27% over that time.

While U.S. Mid West Hot Rolled Coiled Steel has been oversold for 3 weeks and has fallen 40% since mid April 2023.

The Baltic Dry Index has soared 27% in the past fortnight.

Agricultural’s were mainly weaker.

Australian Coking Coal and Uranium have risen 32% and 19% respectively during their 10 week winning streaks.

Cocoa is at a 46 year high and in a 5 week winning streak.

Rubber has risen for 6 consecutive weeks. Sugar has climbed for its 4th week.

Inversely, Lithium Hydroxide has fallen for 11 consecutive weeks.

While Iron Ore and AUD Gold broke their respective 6 and 4 week winning streaks.

And the Gold Volatility Index closed at its lowest level since December 2019.

Amongst currencies, the AUD and the Canadian Loonie were stronger this week. As such, their own strength rendered the AUD/CAD pair flat for the week.

The U.S. Dollar (DXY Index) is in a 9 week winning streak.

The GBP/JPY isn’t overbought this week and the CNH/USD is no longer oversold.

The JPY/USD is nearing oversold levels whilst the THB/USD is at its lowest level since November 2022.

The EUR/USD weakness extends to its 9th consecutive week as does the DKK/USD.

Past editions made mention of the strength in the CHF/AUD. It has now eased lower from those highs.

And the NZD/AUD had a bearish outside reversal week.

The larger advancers over the past week comprised of;

Australian Coking Coal 7%, Rotterdam Coal 4.6%, Baltic Dry Index 16.4%, Cocoa 2.8%, China Coking Coal 7%, WTI Crude 3.7%, Lean Hogs 2%, Copper 2.3%, Heating Oil 2.6%, Coffee 7.1%, Cattle 2%, Newcastle Coal 2.9%, Palladium 5.1%, Platinum 3.9%, Sugar 2.3%, Natural Gas 1.5%, S&P GSCI 1.8%, CRB Index 1.8%, Dutch TTF Gas 5.7%, Brent Crude 4.2%, Uranium 6.8%, JKM 8.6%, KBW Banks 2.4%, CAC 1.9%, MIB 2.4%, IBEX 2%, BOVESPA 3%, KOSPI 2.1%, Nikkei 225 2.8%, NIFTY 1.9%, Oslo 2.7%, Helsinki 1.8%, SMI 2.3%, STI 2.3%, TAIEX 2.1%, TSX 2.7%, FTSE 100 3.1%, Chile 2.1%, ASX 200 1.7% and the ASX Materials Index climbed 3.9%.

The group of decliners included;

HRC Steel (2.2%), Lithium (2.2%), Tin (3%), Corn (1.6%), Oats (4.2%), Soybeans (1.7%), SOX (2.5%), BIST 100 (3.7%) and Mexico IPC Index fell 2.2%. 

September 17, 2023

by Rob Zdravevski

rob@karriasset.com.au

Biotech is ‘uncrowded’

he Nasdaq Biotech Index has been ‘the same price’ for the past 20 months.

Specifically, it has traded within 6% either side of today’s closing price over that time.

While it has spent some time ‘digesting’, its price action is now becoming quite constructive.

Also, it’s hardly a crowded theme.

September 16, 2023

by Rob Zdravevski

rob@karriasset.com.au

Going long the ASX 200? – queue the Loonie versus Aussie

When the CAD/AUD is overbought (along with a couple other metrics), the ASX 200 Index (the orange line) seems to extend the rally, advance or upward trend it is already in.

The study below shows the 12 notable moments over the past 30 years, when that occurred.

September 15, 2023

by Rob Zdravevski

rob@karriasset.com.au

Taking a look at the Canadian 2’s

Probability still suggests that mean reversion amongst interest rates beckons or at least a convergence towards it.

The study below show 6 notable periods (over the past 30 years) where the Canadian 2 year government bond yield was trading meaningfully above its 200 week moving average, overbought on a weekly basis and also 2.5 standard deviations above its rolling weekly mean.

This could translate into opposite things for those looking to fix their borrowing rates and those seeking a fixed rate of interest on their cash.

September 13, 2023

by Rob Zdravevski

rob@karriasset.com.au

Oracle, tech stocks, bubbles or probability

The attached study doesn’t imply any “told ya so” about today’s pending decline in Oracle’s stock price.

It helps show me that prices have ‘no business’ being 40% above their 200 week moving average and defying an eventual mean reversion…..

and also conditions me to taking the ‘fat part of trade’.

Equally, if the business isn’t broken, then there is also little chance that the stock price visits $35 either.

September 12, 2023

by Rob Zdravevski

rob@karriasset.com.au

Reading the ARM Holdings prospectus

ARM Holdings will not receive any proceeds from the shares (American Depositary Shares “ADS”) sold in its upcoming IPO.

All monies paid by new buying shareholders will go to the selling shareholder.

None will go towards the company for business use and holders of the ADS “will not be treated as one of our shareholders and you will not have shareholder rights”.

From the ARM Holdings prospectus

https://www.sec.gov/Archives/edgar/data/1973239/000119312523216983/d393891df1.htm#rom393891_23

Within the opening lines on page 1

All of the ADSs to be sold in this offering are currently held by the selling shareholder identified in this prospectus. We are not selling any of the ADSs in this offering and will not receive any proceeds from the sale of the ADSs by the selling shareholder in this offering.

From page 80 of the prospectus

USE OF PROCEEDS

We will not receive any proceeds from the sale of the ADSs by the selling shareholder (including any proceeds from any sale of ADSs pursuant to the underwriters’ option to purchase additional ADSs from the selling shareholder). All net proceeds from the sale of ADSs in this offering will go to the selling shareholder.

From page 14

• As long as SoftBank Group controls us, other holders of our ordinary shares and ADSs will have limited ability to influence matters requiring stockholder approval or the composition of our Board of Directors.

• SoftBank Group’s interests may conflict with our own interests and those of holders of our ADSs.

from page 16

Each ADS represents one ordinary share, nominal value £0.001 per ordinary share, of Arm Holdings plc. As a holder of ADSs, you will not be treated as one of our shareholders and you will not have shareholder rights. Rather, you will have the rights of an ADS holder or beneficial owner of ADSs (as applicable) as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time. To better understand the terms of our ADSs, see “Description of American Depositary Shares” elsewhere in this prospectus.

September 12, 2023

Macro Extremes (week ending September 8, 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)

Australian Coking Coal

Rubber

Overbought (RSI > 70)

Turkish 10 year government bond yields

U.S. 3 month bill yields

Cocoa

GBP/JPY

Russia’s MOEX

India’s Nifty

And Turkiye’s BIST 100

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

Russian 10 year bond yields 

Uranium

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

CLP/USD

And Copenhagen’s equity index

Oversold (RSI < 30)

U.S. Mid West Hot Rolled Coil Steel

Lithium Hydroxide

CNH/USD

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

None

Notes & Ideas:

The government bond yields reversed last weeks general travel and rose across the board except for in the United Kingdom & China.

Equity indices were lower with the majority of them posting declines between 0.5% and 1.00%.

The KBW Bank Index posted a bearish outside reversal week as did Jakarta while Chile’s equity index is on a 6 week losing streak.

Commodities were mixed with energy prices provided an overall bullish bias for the broader commodity indices. 

This week, Gasoline and Distillates rose, reversing last week’s declines. 

There wasn’t much doin’ in the agricultural’s.

Australian Coking Coal and Uranium are in 9 week winning streaks, Iron Ore’s is 6 and Gold (as priced in AUD) rising streak extends to its 4th week.

Lithium Hydroxide has fallen for 10 consecutive weeks.

Cocoa trades to a near 46 year high.

And Urea’s bullish trade (which began at the $300 mark when it was oversold) is nearing the upper end of is ‘range’.

In currencies, the AUD was softer against everyone except the Thai Baht and the South African Rand.

The Canadian Loonie was stronger against al except the USD.

Incidentally, the DXY Index has risen for 8 straight weeks.

Commensurately, the EUR/USD has fallen over those same 8 weeks.

The Thai Baht and the Japanese Yen are at their weakest levels versus the USD, since November ’22.

The CNH/USD (Chinese Yuan) is at its lowest since December 2007.

And the Mexican Peso has fallen 4% over the past fortnight against the USD.

The larger advancers over the past week comprised of;

Australian Coking Coal 3.3%, Baltic Dry Index 11.4%, WTI Crude 2.3%, Gasoil 7.9%, Heating Oil 6.3%, Cattle 1.7%, Tin 3.3%, Orange Juice 4.4%, Gasoline 2.4%, Sugar 1.9%, S&P GSCI 1.3%, Urea U.S. Gulf 14%, Brent Crude 1,7%, Urea Middle East 12.2%, Uranium 2.2%, Oats 2.8%, Nifty 2%, Sensex 1.9% and BIST rose 3.3%.

The group of decliners included;

Aluminium (2.8%), Cotton (4.5%), Lean Hogs (1.8%), Copper (3.5%), Coffee (2.1%), LNG (2%), Lithium (2.7%), Natural Gas (5.8%), Platinum (7.6%), Palladium (2.9%), Silver (5.2%), Dutch TTF Gas (3.1%), Silver in AUD (4.1%), Rice (3%), CSI 300 (1.4%), KBW Banks (2.4%), DJ Transports (4%), MIB (1.5%), Bovespa (2.2%), MOEX (2.7%), Nasdaq Composite (1.9%), S&P MidCap 400 (3.6%), Nasdaq Biotechs (1.7%), Nasdaq 100 (1.4%), Russell 2000 (3.5%), SOX (3.2%), S&P 500 (1.3%), TSX (2.3%), ASX 200 (1.7%), ASX SmallCaps (2.3%), KRE Regional Banks (5.6%), S&P SmallCaps 600 (4.3%), S&P SmallCap Value (4.7%), Chile’s IPSA (2.1%) and China’s A50 fell 2.1%.

September 10, 2023

by Rob Zdravevski

rob@karriasset.com.au

Oversold Inflation Reading Was a Buy Signal for Commodities

Days after my July 4, 2023 call in this note…….

Oversold Inflation Rates is a signal to buy Commodities

……the U.S. inflation rate touched 3% and registered a monthly oversold reading.

And since that date, the buy signal in commodities (the S&P GSCI) has resulted in a rise of 12.7% over the past 46 trading days.

My thinking of ‘warming to commodities’ remains intact.

Commodity bullishness – illustrated

September 7, 2023

by Rob Zdravevski

rob@karriasset.com.au

Mirages & Correlations

I love a good correlation.

Not to be confused with a chlorination nor a coronation.

Putting any dyslexia aside……

correlations should not be used in isolation when forecasting asset prices and sometimes a correlation doesn’t always exist.

Whilst the ASX 200 carries notable weightings in commodity related companies, it doesn’t automatically relate to a correlation with the inverse travel in the U.S. Dollar.

(it is common logic that a declining USD translates into higher commodity prices)

The study below shows that the ASX 200 can rally while the U.S. Dollar is also rising.

Beyond the other companies of meaningful market capitalisation within the ASX 200, factors such as a weaker AUD can be a positive for the earnings of the commodity related stocks.

September 6, 2023

by Rob Zdravevski

rob@karriasset.com.au