Macro Extremes (week ending October 8, 2021)
October 10, 2021 Leave a comment
The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.
Extremes “above” the Mean (at least 2.5 standard deviations)
USD/JPY (telling us of a strong USD and a weaker Yen)
It’s the weakest since early 2019.
So sell USD and Buy JPY and use it to buy cheap Japanese equities.
Overbought (RSI > 70)
Hot Rolled Coil Steel (for the 54th consecutive week)
Aluminium
Australian coal
and India’s Sensex & NIFTY 50 equity indices
The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)
U.K. 10 year government bond yields (Gilts)
U.S. 2 year and 5 year govn’t bond yields
Korean 10’s
The Bloomberg Commodity Index
The CRB Index
The Baltic Dry Index
WTI and Brent Crude
Gasoil
Heating Oil
Natural Gas
the JKM “Japan/Korea (LNG) Marker”
Coal, Rotterdam delivery (it was up 22% early in the week)
Russia’s MOEX equity index
Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;
Extremes “below” the Mean (at least 2.5 standard deviations)
South Korea’s KOSPI equity index
EUR/GBP – telling us the Euro is weaker and we have a strong British Pound, so sell your GBP and Buy EUR (there are some bargains amongst European equities)
Oversold (RSI < 30)
None
The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean.
None
Notes & Ideas:
Most of the price action continues in the bond market (with some markets seeing yields hitting some extremes) while many commodities continue to post weekly moves of greater than 2% over this past week.
In the past weeks bond yields have been rising.
Over the past 8 weeks, Australian 10’s have risen from 1.07% to 1.67%. This week alone, they’ve risen from 1.49%.
U.S. 10’s moved from 1.13% to 1.62%. In the past week, they stretched from 1.47%.
French 10 years from -0.15% to + 0.12%.
U.K. 10’s have doubled from 0.52% to 1.15%. We’ve seen them extend from last weeks 1.06%.
While over the past week alone, Korean 10’s moved from 2.26% to 2.38%. Canada’s equivalent went from 1.47% to 1.63% and German Bunds rose from a negative 0.23% to (0.15%).
My call for a peak and an interim ‘head-fake’ in rising yields stands. Interest Rates will rise but for now the surge needs a break. Furthermore, the U.S. 10 year minus 2 year yield ‘spread’ has hit a resisting trendline.
The larger advancers over the past week comprised of Baltic Dry Index (shipping) 6.2% (adding to last week’s 12% rise), WTI & Brent Crude 4.3%, Gasoil 6.4%, Copper 2%, Heating Oil 3.8%, JKM 3% (peaked at +12%), Cattle 4.3%, Lumber 15% (I’ll remind readers of my bottom call), Platinum 5.6%, Gasoline 5.1%, CRB Index 2.2%, Australian Coal 3.2%, KBW Banking Index 2.3%, MOEX 4.3%, Nifty 50 & Sensex 2.2%, Singapore’s Strait Times 2%, Dow Jones Transports 2.7%, Nasdaq Transports 1.8% & Australia’s ASX 200 1.9%.
The group of decliners included Lean Hogs (2.2%), Hot Rolled Coil Steel (2%), Orange Juice (3.9%), Corn (2%), Wheat (2.8%), Dutch (Euro) Gas (6.4%) peaked at +45% during the week, KOSPI (2.1%) and Nickel fell 2.5%.
In last week’s edition I wrote……..and I remind readers;
A rise in the U.S. Dollar has generally resulted in weaker commodity prices. Gold in AUD continues to hold a A$2,312 support level.
But I continue to watch and think that recent rise in interest rates will be a head-fake and lead to a reversal lower. The next resistance in U.S. 10’s is 1.62%.
Higher U.S. interest rates means a rising AUD. If 10’s hit resistance and reverse lower, the lower AUD and weaker commodities trade is back on.
In other notes, the FTSE 100 (7,096) is closer to a breakout and is Italy’s MIB Index (26,051), with my bet being for lower prices.
October 10, 2021
by Rob Zdravevski
rob@karriasset.com.au
