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

ASX 200 – boring, sideways travel until now?

The ASX 200 equity index is not any higher than 3 months ago.

On May 25, 2023, I wrote a note forecasting ‘weakness’ in the ASX 200.

For 2 months since then, we saw general weakness.

Seeing weakness in ASX 200

In fact, todays’ price is the same price as seen in May ’23, March ’23, December ’22 and May 2022.

The past 15 months or so will surely disappoint those passive ETF indexers who can’t ‘read the tape’ or don’t believe in timing entry and exits.

But today, there are early develops in a new upward trend for the ASX 200.

September 6, 2023

by Rob Zdravevski

rob@karriasset.com.au

When the U.S. Dollar was king….

One year ago, I wrote a note when the U.S. Dollar Index (DXY) was at an overbought ‘extreme’.

The chart below reflects on that moment and those previous.

There have been 7 such times over the past 50 years.

Separately, this occurrence also has correlations to commodity prices and other assets.

The study below shows the percentages that the DXY Index was trading above its 50 month moving average whilst also registering a monthly overbought reading along and when the price was also 2.5 standard deviations above its rolling monthly mean.

And at various points in the past year or so, we still heard pundits calling for the demise of the U.S. Dollar.

September 4, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending September 1, 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)

Rubber

Overbought (RSI > 70)

U.S. 3 month bill yields

Russian 10 year bond yields 

Cocoa

MOEX

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)

None

Oversold (RSI < 30)

U.S. Mid West Hot Rolled Coil Steel

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

Lithium

Notes & Ideas:

The government bond yields which appeared in the overbought list last week are no longer there as yields fell everywhere.

Chinese 10 year bond yields were the exception, for they rose and moved out of Oversold territory.

More interestingly, the U.S. 2 year bond yield posted an outside bearish reversal week.

All Equity indices were higher this week with many of them posting gains somewhere between1.4% to 1.6%, while the lost below features the over-achievers.

Copenhagen and Chile were the only two markets to decline for the week with the latter in a 5 week losing streak.

Last week’s losers (Chinese and U.S. banks) are this amongst this week’s winners and the Shanghai Composite & Hang Seng aren’t oversold this week.

While the Nasdaq Composite has climbed 5.5% over the past fortnight.

Commodities were mixed although rising metals and oil prices tipped the scales into the positive for the broader indices.

Amongst the energy sector, we saw Crude Oil, Gas and Coal prices rise while Gasoline, Distillates and Heating Oil fell. The latter giving up all of last weeks gain.

Over the past 2 weeks, Sugar, Aluminium, Platinum have risen 9%, 7% and 6% respectively, while Wheat has fallen 7% over the same time.

LNG and Oats aren’t overbought this week although Rubber entered this region for the first time in 16 months following its 16% rise over the past 3 weeks.

Uranium and Australian Coking Coal are in 8 week winning streaks. Iron Ore’s rising streak completes its 5th week while Heating Oil broke its 9 week consecutive climb.

Inversely, Lithium Hydroxide prices are in a 9 week losing streak while Middle East Urea prices have fallen for 5 consecutive weeks.

Cocoa is overbought again amidst a stellar 60% advance since late September 2022.

And U.S. Midwest Hot Rolled Coil Steel prices fell 10% and are now Oversold.

In currencies, the AUD rose and broke various declining streaks include that against the USD.

In turn, the USD was generally higher, seeing the DXY Index extend a 7 week winning streak.

The same streak exists in the USD/DKK with the exception of the USD/CAD which broke its 5 week winning run. 

CHF/AUD which featured in recent posts isn’t overbought this week.

Overall, the EUR weakened. Specifically, the EUR/USD pair is in a 7 week losing streak now trading at 1.07. Before this move, it was 1.12.

The GBP was flat while the JPY/GBP moved out of Oversold territory.

The larger advancers over the past week comprised of;

Australian Coking Coal 6%, Aluminium 4.7%, Cocoa 4%, China Coking Coal 5.8%, WTI Crude 7.5%, Cotton 3%, Iron Ore 1.8%, Lean Hogs 4.3%, Copper 2.3%, Newcastle Coal 14.7%, Natural Gas 8.9%, Platinum 2.2%, Sugar 4%, S&P GSCI 2.4%, Rubber 3.5%, CRB Index 2.2%, Dutch TTF Gas 2.4%, Brent Crude 5.7%, Uranium 3.9%, Corn 2.3%, Rice 3.3%, Shanghai 2.3%, CSI 300 2.2%, AEX 1.7%, KBW Bank Index 2.9%, DJ Industrials 1.6%, HSCEI 2.5%, Hang Seng 2.4%, Bovespa 1.8%, MOEX 2.3%, Nasdaq Composite 3.3%, Kospi 1.8%, S&P 500 2.5%, TSX 3.6%, ASX 200 2.3%, KRE Regional Banks 4.6%, S&P SmallCap 600 3.5%, BIST 4.4%, FTSE 250 2.2%, ASX Materials 3.2%, ASX Industrials 2%, S&P MidCap 400 3.6%, Nasdaq 100 3.7%, Nikkei 225 3.4%, Oslo 2.8%, Helsinki 3.7%, Stockholm 1.8%, Russell 3.6% and the Philadelphia Semiconductor (SOX) Index soared 5.4%.

The group of decliners included;

Rotterdam Coal (4.7%), Gasohol (2.8%), Heating Oil (5.8%), Hot Rolled Coil Steel (10.6%), Lumber 2.4%, LNG in Yen (6%), Lithium (146%), Tin (3.1%), Gasoline (2%), Urea U.S. Gulf (6.2%), Urea Middle East (9.9%), Oats (2.9%) and Wheat fell 4.2%.

September 3, 2023

by Rob Zdravevski

rob@karriasset.com.au