rob zdravevski's blog

RBA’s abstention is not the consensus

I think this is the basis that the Reserve Bank of Australia (RBA) is using for not following the rest of the world’s hawkish stance on interest rates.

“As the Board has stated previously, it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. While inflation has picked up, it is too early to conclude that it is sustainably within the target band.”

https://www.rba.gov.au/media-releases/2022/mr-22-02.html

While inflation has risen into its target range, the RBA’s articulation of it needing to sustainably remain in that band, aids my case that inflation will moderate into the year.

So much, that I think the U.S. Federal Reserve will CUT rates after it initially hikes twice.

Earlier this week, I wrote that I think the 5-7 Fed hikes predicted by some investment banks is ridiculous.

It increasingly seems the RBA is behind the curve (keeping cash rates at 0.10%) while the Australian 2 year note has risen (8-fold since October) to 0.90%, yet they seem to be the outlier bet in the rate hiking stakes, especially amongst the commodity exporting nations.

February 1, 2022

by Rob Zdravevski

rob@karriasset.com.au

Calling lower commodity prices

AUDUSD is making a new lower low.

It could trade up to 0.7082 – 0.7135 in next days, however I’m preparing for a next lower leg where 0.6780 is the next stop.

In turn, following a little pop to 260.50, the Thomson Reuters CRB Index should also turn lower.

This scenario bodes poorly for the broader commodity complex, with energy, agricultural’s and industrial metals at greatest risk to declines.

Beyond this, ponder your exposure to producers/miners/drillers/growers of such commodities.

Inversely, lower input prices will benefit those end product ‘manufacturers’.

And I’ll look to sell USD/buy AUD at lower levels.

January 31, 2022

by Rob Zdravevski

rob@karriasset.com.au

Target reached on Baltic Dry Index

Last week, the Baltic Dry Index dropped below 1,340 thus satisfying an Oversold as written in this note dated January 22, 2022.

Ships are cheap again

Re-unifying nations is only M&A

“With the exception of warfare, [M&A] is how assets are transferred on this planet”, said Chairman and CEO of Vista Equity Partners, Robert F. Smith.

It is plausible that Russia and China employ a Merger and Acquisition strategy in re-unifying Ukraine and Taiwan respectively, rather than warfare.

Warfare suits the United States well, for 20% of its annual military expenditure is towards the procurement of weapons.

That’s a $100 billion which gets paid to a defense industry that is searching for sales especially after withdrawals from Iraq and Afghanistan.

Can you imagine what the defense industry lobbyists are saying in Washington ?

January 31, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending January 28, 2022)

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

Japanese 10 year government bond yields

U.S. 10 year government bond yields

TBX

US dollar Index (DXY)

Orange Juice

Nickel;

Soybean

Palladium

Overbought (RSI > 70)

Australian 2 and 5 year bond yields

U.S. 5 year government bond yields

Greek 10 year government bond yields

Russian 10 year bond yields

Australian Coal

CRB Index

Bloomberg Commodity Index

Cotton

Heating Oil

Gasoil

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

U.S. 2 year government bond yields

Iron Ore

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

Chinese government 10 year bond yields

Amsterdam’s AEX Index

Shanghai Composite

CSI 300

Dow Jones Industrial Average

Nasdaq 100

Nikkei 225

S&P 400 MidCap

Russell 2000

S&P 500

Nasdaq Transports

ASX 200

And the Copenhagen and Helsinki indices

Oversold (RSI < 30)

EUR/USD

DKK/USD

KRW/USD

SEK/USD

RUB/USD

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

Hot Rolled Coil Steel (HRC) 

Korea’s KOSPI Index

Notes & Ideas:

The intra-week volatility was something to behold although we tend to see 5-12 days per year where stocks and markets are up and down 3% either way, all within a single day.

After all of the wickedness, the Nasdaq was flat for the week, while the Dow Jone Industrials and S&P 500 were up 1% for the week.

Koprea’s KOSPI hit a 14 month low and features in this week’s Oversold ‘extreme’ list.

In other news, the AUD versus the USD, fell 2.5%, the German 10 years could trade out of their negative yield.

Aussie 10 year bond yields traded to a high of 2.05% before closing the week at 1.92%, while the Australian 2’s touched 1.03% to close the week at 0.95%.

Amongst the panic, interesting Gold and Silver didn’t find a safe haven bid, instead they fell 2.3% and 8.3% respectively.

Energy had a strong week, as it enters Overbought extremes (subjectively suggesting that geopolitical tensions are mainly factored in), Softs generally rose while Dr. Copper looks like rolling over.

Steel remains Oversold, as HRC prices fell 18%.

In the face of diplomacy tensions, Russia’s MOEX Index rose 1.4%.

And as predicated in last week’s edition, the ASX 200 Index did trade down to an extreme 2.5 standard deviation reading below its weekly mean.

The larger advancers over the past week comprised of; 

Rotterdam Coal 12.6% (up 45% in 3 weeks), WTI Crude 2% (up 15% in 4 weeks), Gasoil 4.3%, Iron Ore 6.4%, JKM 6.1%, Coffee 1.7%, Natural Gas 16%, Brent Crude 3.4%, Dutch TTF Gas 16.2%, CRB Index 1.8%, Gasoline 3.9%, Heating Oil 3.5%, Lean Hogs 2%, Aluminium 3.4%, Corn 3.2%, Soybean 3.9%, Oats 8.4%, Palladium 12.9%, Cotton 2.5%, Brazil’s Bovespa 2.7% and Russia’s MOEX Index rose 1.4%.

The group of decliners included ;

Baltic Dry Index (2.4%) (having fallen 80% in 5 weeks), Copper (4.7%), Orange Juice (3.5%), Platinum (2.8%), Silver (8.3%), Urea (17.5%), Sugar (3.7%), Nickel 6.9%, Lumber (10.4%), HRC (17.9%), Gold (2.3%), Cocoa (3.2%), Silver (8.3%), Uranium (2.4%), Shanghai Composite (4.6%), AEX (2.6%), China’s CSI 300 (4.5%), DAX (1.8%), MIB (1.8%), HSCEI (6.6%), Hang Seng (5.7%), Kospi (6%), Nikkei (2.9%), Sensex (3%), Copenhagen (2.8%), Stockholm (2%), Helsinki (2.4%), Philadelphia SOX (3.8%), Switzerland’s SMI (2%) and Australia’s ASX 200 fell (4.7%).

January 29, 2022

by Rob Zdravevski

rob@karriasset.com.au

Could Russia re-unify Ukraine?

I still think Russia won’t invade Ukraine.

They could possibly take control of the nation without any military force.

What if Russia ‘acquires’ Ukraine without invading?

Let’s call it a re-unification.

What could NATO and the U.S. do then ?

It’s plausible that Russia deploys economic pressure and fiscal support behind the shadows of other military proxies.

Keep in mind, that Ukraine is the poorest country in Europe and could be tempted to be re-unified.

My recent posts have mentioned the back story being Oil and Gas 

https://www.linkedin.com/posts/robzdravevski_russia-biden-usa-activity-6889888130896404480-iX-n

This article citing the ‘Politics of Gas’ is dated July 13, 2021

The politics of Gas

Then I started writing this article on October 7, 2021

How The World Works – edition # 1

Within, I mention that Germany had until January 8th to commission the NordStream pipeline which didn’t happen.

But I wanted to highlight the link to a book which Antony Blinken’s wrote in 1987, titled, “Ally versus Ally: America, Europe, and the Siberian Pipeline Crisis”

Furthermore, I wrote this on November 23, 2021, 

https://www.linkedin.com/posts/robzdravevski_biden-orders-release-of-us-oil-reserves-activity-6869041890155741184-1Hu_

In a game of Chess, it’s ideal to acquire the King with the least amount of moves, noise and carnage.

Barreling through all the pawns, making a lot of bluster and publicly announcing your moves, seldom wins. 

I’ll post another set of points behind my thinking over the weekend.

January 28, 2022

by Rob Zdravevski

rob@karriasset.com.au

Chilean Interest Rates Have Doubled

Chile raises interest rates by 1.5% to 5.5%.

https://www.bloomberg.com/news/articles/2022-01-26/chile-surprises-markets-with-150-basis-point-interest-rate-hike?sref=qLOW1ygh

A month ago, it increased rates by 1.25%.

Rates have now  doubled within 35 days, moving from 2.75% to 5.5%.This has also driven the Chilean Peso higher by 10% within the past month.

Although, this was also a move by the Chilean central bank playing catch-up to the the 10 year bond market for Chilean 10’s already doubled in the preceding 10 months.

Upon announcing the last 2 rate hikes, the 10’s fell and held steady to meet where the central bank have moved up to.

G7 central banks are facing a similar scenario of being behind the curve, that the market is already throwing them.

I understand some extent of the G7’s wait and see stance because Chile’s risk is that have hiked too aggressively.

If they have and they need to adjust rates lower, the correlation of Chilean 10′ to the USD price of Copper may remain in sync.

Importantly, Chile is yet another commodity sensitive country to raise rates in order to stifle inflation.

https://www.linkedin.com/posts/robzdravevski_economy-interestrates-growth-activity-6853984783878426624-ywFq

Similarly to Australia, its central bank inflation target is 2%-3%.

While Australia printed an inflation rate of 3.5%, Chile’s inflation came in at 7%.

Incidentally, Canada’s inflation target is 2% and their inflation for the December quarter just came in at 4.5%. Their central bank governor has just signalled higher rates are coming.

This will be equally interesting to watch, because Canada’s citizen’s are as heavily indebted as the Australian’s.

As per my post, the citizen’s of Chile, Mexico, Brazil, Russia don’t have such a heavy debt burden.It’s the rising cost of living that hurts them more, not servicing interest repayments.

Albeit Chile has a good to high standard of living and is considered the richest country in South America, its GDP per capita basis is similar to Trinidad & Tobago, Romania, Bulgaria and the Seychelles.

Hence, I’ll repeat a sentence from my post, Inflation remains a tax that the ‘poor’ can’t afford to pay.

What is even more interesting is Chile’s share of the world’s copper exports.

47% of Chile’s exports are Copper related (equalling $32 billion worth) making them the world’s largest exporter of such.

https://oec.world/en/profile/country/chl#Profile

While Chile exports 31% of world’s annual Copper Ore, (Peru is 2nd at 20%), it also produces and exports 22% of the world’s refined copper. Russia is next largest at 7%.

Similar to ‘Petro-Nations’ needing Petro-Dollars, Chile needs Copper receipts….and perhaps it needs to export more Copper in order to make up for the less Peso’s being received.

This would likely result in more Copper hitting the market, especially while Copper is trading near 10 year highs.

January 28, 2022

by Rob Zdravevski

rob@karriasset.com.au