Macro Extremes (week ending May 5, 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) 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)

U.S. 10 year bond yield minus U.S. 5 year bond yield

Overbought (RSI > 70)

Australian 3 month bank bill yield

Silver (in AUD)

Sugar

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)

China 10 year government bond yields 

WTI Crude Oil 

S&P GSCI (commodities) Index

Brent Crude Oil

Corn

Soybeans

Wheat

Oversold (RSI < 30)

JKM LNG Gas

Lithium Hydroxide 

KBW Banking Index

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

U.S. 5 year bond yield minus U.S. 3 month bond yield

Notes & Ideas:

This week markets were generally quiet.

Equities were muted again for another week as corporate earnings season was winding up. Most continue last week’s slight bias towards weaker prices.

For instance, the U.S. Midcaps and Smallcaps each fell 1.2% and 0.5% compounding last week’s corresponding respective declines of 0.3% and 1%.

Apart from the U.S. Bank Index exhibiting a notable loss, very few indices appear in this weeks list. 

For the week, the ASX 200 fell 1.2% and the ASX Small Caps eeked out a return of 0.1%.

The story of trendless equity markets continues.

Government bond yields rose in Australia and Japan while they fell in Europe and the United States.

The U.S. 5 year bond yield minus U.S. 3 month bond yield spread (or yield curve) is still Oversold, which means something.

Commodities continue host most of the action with the S&P GSCI Index hitting an oversold extreme aided by the weighting of decline seen amongst various energy contracts. 

Gasoil and Heating Oil achieved their long term mean reversion as cited in last weeks publication. 

JKM LNG closed at its lowest point since June 7, 2021

Softs bounced by the week’s close with a few still registering Oversold readings. 

Cattle has now fallen 7% oil the past 2 weeks. 

Sugar broke its 6 week winning streak and Australian Coking Coal ended its 5 week downdraft.

Heating Oil’s losing weekly streak has extend to 6 and Lithium’s in now 11 straight.

Amongst currencies, the EUR saw weakness and the AUD firmed up from recent Oversold levels.

The currencies trading at extremes last week are no longer so.

The larger advancers over the past week comprised of;

Australian Coking Coal 4.3%, Hot Rolled Coil Steel 3%, Lumber 2%, Tin 4.5%, Nickel 4.1%, Cotton 3.8%, Uranium 2.3%, Silver in AUD 2.4%, Corn 2%, Oats 5.5%, Rice 5.2%, Wheat 4.2%, HSCEI 1.4% and the Nasdaq Biotech Index rose 1.8%.

The group of decliners included;

Rotterdam Coal (6.8%), WTI Crude Oil (7.1%), Gasohol (3.5%), Lean Hogs (5.2%), Heating Oil (2.6%), JKM LNG (2%), Cattle (2.2%), Natural Gas (11.3%), Platinum (2%), Gasoline (6%), S&P GSCI (3.4%), Rubber (1.7%), CRB Index (2.4%), Dutch TTF Gas (5.1%), Urea (U.S. Gulf (2%), Brent Crude Oil (6.2%), KBW Banking Index (7.4%), Oslo (1.8%) and Russia’s MOEX fell 3.7%.

May 7, 2023

by Rob Zdravevski

rob@karriasset.com.au 

Macro Extremes (week ending April 28, 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) 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)

EUR/USD

DKK/USD

AUD/IDR

Overbought (RSI > 70)

Silver (in AUD)

Gold (in AUD)

Russia’s MOEX Index

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

Sugar

EUR/AUD

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

China 10 year government bond yields 

U.S. 10 year bond yield minus German 10 year bond yield

Iron Ore

Corn

Oats

Soybeans

Oversold (RSI < 30)

U.S. 5 year bond yield minus U.S. 3 month bond yield

Australian Coking Coal

JKM LNG Gas

Lithium Hydroxide 

AUD/GBP

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

None

Notes & Ideas:

Equities generally had quiet week, again, with a slight bias towards weaker prices.

For instance, the S&P 500 rose 0.9%, while Midcaps and Smallcaps fell 0.3% and 1% respectively.

The SOX, FTSE and ASX smallcaps fell between 0.3% and 0.9% for the week, while the ASX 200 rose 0.2%.

Trend less equity markets remains the trend, for now.

Government bond yields fell. While my trend analysis favours lower yields, pattern recognition work tells me it’s prudent to identify the sideways and ‘holding’ pattern seen of late and wait for new ‘higher high’ or ‘lower low’ to be recorded.

The Japanese 10 year bond yield recorded the most notable drop from 0.46% to 0.38%.

The most action was seen in Commodities as it had the active week in some time. 

Coffee, Cocoa, Cattle, Middle East Urea and Hot Rolled Coil Steel are no longer sporting overbought tendencies.

Sugar’s 6 week rally has now amounted to a 27.5% return.

In fact, the streaks amongst commodity prices have returned. Heating Oil has declined for 5 consecutive 5 weeks, Lithium has sunken for 9 weeks, Australian Coking Coal is in a 5 week downward streak (9 of its past 10 have been negative) while the EUR/USD is in its 9th rising week. 

We saw a continuation of last week’s weakness in energy, copper and soybeans with more agricultural (corn and wheat) joining the declines.

Other observations include, Gasoil (diesel) and Heating Oil are 3% from reaching a long awaited men reversion to its 200 week moving average and Copper broke below a support line.

The run in the PGM’s (platinum and palladium) took a breath this past week with the former breaking its 6 week rising streak.

Australian Coking Coal joined the oversold ranks having now seen a 39% decline over the past 5 weeks whilst also mean reverting back to its 200 week moving average.

Corn’s nearest contract fell 12% this past week while the next contract month fell 14%. The pertinent reason for mentioning the subsequent month’s contract this week, is that it registered quinella of oversold readings and it also mean reverted to its 200 week moving average.

And Lumber has closed at its lowest level since mid-May 2020.

Remember all those stories about rising timber prices affecting homebuilding costs?

Euro strength dominated action amongst currencies.

The AUD was weak against most and many currencies which prompts me to say Australian assets are on sale against the GBP and EUR.

While the BRL/USD takes break from trading at an extreme, it continued to strengthen and we also saw the Danish Krone trade into overbought territory against the USD.

The larger advancers over the past week comprised of;

Baltic Dry Index 4.8%, Lean Hogs 3.4%, Natural Gas 7.9%, Sugar 6.1%,  Urea (U.S. Gulf) 3.2%, Urea (Middle East) 9%, Gold in AUD 1.5%, Nasdaq 100 1.9%, Sensex 2.4%, Mexico 1.8%, Chile’s Santiago equity index rose 3.6%.

The group of decliners included;

Australian Coking Coal (13.7%), Rotterdam Coal (2.1%), Brent Crude (1.4%), Copper (2.3%), Heating Oil (4.5%), Hot Rolled Coil Steel (9.3%), JKM LNG Gas (2.8%), Coffee (2.9%), Lumber (11.6%), Cattle (4.9%), Lithium (6.6%), Tin (5.7%), Nikkei (5%), Palladium (6.1%), Platinum (4.3%), Gasoline (2.8%), S&P GSCI (1.6%), Dutch TTF Gas (4.1%), Corn (11.8%), Oats (6.5%), Soybeans (2.1%), Wheat (5.8%), KBW Bank Index (2%), DJ Transports (2.7%), MIB (2.4%), IBEX (1.9%), KOSPI (1.7%), Nasdaq Biotech Index (2%) and Thailand’s SET Index fell 1.9%.

April 30, 2023

by Rob Zdravevski

rob@karriasset.com.au 

Passive indexing will likely disappoint

The ASX 200 equity index is the same price as it was 2 years ago.

How are your passive, indexed ETF returns working out?

What if various equity indices are flat for many years to come?

This is also applicable to those index-hugging fund managers too.

(after all, if you stay close to the index, you get to keep your job)

Timing the market (and using probability) is what professional investors apply their skills towards, every day of every year.

At this particular time, I hope investors are not ingesting that old financial services line, “it’s time in the market and not timing the market’.

That line is often accepted by many as an excuse for their lack of attention towards prices and valuations in the capital markets.

Conversely, when it comes to buying or selling residential real estate or the purchase of a car or an airplane ticket, we become suddenly ‘market timers’ and we’ll tell anyone who is listening how good we are.

April 23, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending April 21, 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) 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)

Coffee 

Copenhagen

BRL/USD

U.K. 3 years government bond yields

Overbought (RSI > 70)

Cocoa

Hot Rolled Coil Steel (HRC)

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

Cattle

Sugar

Russia’s MOEX Index

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

None

Oversold (RSI < 30)

U.S. 5 year bond yield minus U.S. 3 month bond yield

Urea (Middle East)

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

Lithium Hydroxide 

Notes & Ideas:

Equities generally had quiet week. In Europe they traded slightly higher through the past week, while U.S. and Australian equities ranged from being slightly lower to unchanged. Asian and South American bourses bore the larger losses for the week, with Chile dropping the most as the government plans to nationalise the lithium industry.

Continuing previous weekly commentary, equities are consolidating and broadly remain treadless, although Spain’s IBEX and Switzerland’s SMI did make ‘recent’ higher highs.

Government bond yields moved in the direction that I wrote about last week. They rose modestly across the world except for the Canadians.

With the recent hoo-ha in the bond market, it’s timely to paraphrase a Kipling adage, ‘keeping one’s head while others are losing theirs’. 

Several weeks ago, the U.S. 2 bond was yielding 5.08%. It then tanked to 3.56% and is now trading at 4.20%, which is close to being at the mid-point of those highs and lows.

Overall Commodities traded quietly with a bias for lower prices with energy and copper and soybeans leading the way while metals (industrial and PGM’s) saw strength. 

The PGM’s (platinum and palladium) have had a stellar run while Australian Coking Coal prices have declined 25% over the past 4 weeks.

Last week’s overbought orange juice along with gold and silver (as priced in AUD) are no longer so.

The currencies which were at extremes last week, are not anymore.

The U.S. Dollar was slightly firmer (amongst media noise discussing its demise), enough so to lift it out of oversold territory.

The AUD was weaker against the EUR and GBP, while the BRL continues to weaken against the USD.

The larger advancers over the past week comprised of;

Rotterdam Coal 2.5%, Baltic Dry Index 4.8%, Cocoa 3%, China Coal 13.2%, Lumber 2%, Tin 13.6%, Natural Gas 5.6%, Nickel 6.7%, Palladium 7.4%, Platinum 8%, Sugar 3%, MOEX 3.2% and the Nasdaq Transports rose 2.1%.

The group of decliners included;

Australian Coking Coal (3.7%), Bloomberg Commodity Index (2.1%), WTI Crude (5.6%), Gasoil (6.2%), Lean Hogs (4.3%), Copper (3.1%), Heating Oil (5.7%), JKM LNG (6.3%), Lithium (2.1%), Gasoline (8.3%), S&P GSCI (3.5%), CRB Index (2%), Cotton (3.3%), Dutch TTF Gas (2.4%), Brent Crude (5.8%), Soybeans (3.4%), Rice (1.5%), CSI 300 (1.4%), HSCEI (2.2%), Hang Seng (1.8%), BOVESPA (1.8%), Helsinki (2.1%), TAIEX (2.1%), SET (2.2%) and Chile fell 3.5%.

For reference, Australia’s Small Cap fell 1.1%, the ASX 200 eased 0.4% lower, Toronto’s TSX rose 0.6%, the Dow Jones Industrials and S&P 500 were almost unchanged with slight declines of 0.2% and 0.1% respectively, the Nasdaq Composite and 100 correspondingly lost 0.4% and 0.6%, the Philadelphia SOX Index slumped 1.6% whilst the Dow Jones Transport Index climbed 1.2% for the week.

April 23, 2023

by Rob Zdravevski

rob@karriasset.com.au