rob zdravevski's blog

Macro Extremes (week ending February 23, 2024)

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

U.S. 3 month bond yield

Lean Hogs

NZD/AUD

Overbought (RSI > 70)

Rubber

AEX

Budapest

DAX

Dow Jones Industrial Average

Italy’s MIB

Egypt 30 Index

Nasdaq Composite

Nasdaq 100

Nasdaq Transportation Index

NIFTY 50

Nikkei 225

Philadelphia Semiconductor Index (SOX)

TAIEX

BIST 100

And the S&P 500 Index

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

Cocoa (in U.S. and London)

KLSE

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

None

Oversold (RSI < 30)

China 10 year government bond yield

JKM LNG

Lithium Hydroxide

Dutch TTF Gas

Corn 

Soybean

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

None

Notes & Ideas:

Government bond yields had a boring week.

Most stayed within 10 basis either side of last week’s close.

Equities were stronger, however there were some losers too.

The Nasdaq 100, Composite and Transports are all back in overbought territory after having a breather last week. The first two had bullish ‘outside’ weeks while the Nasdaq transports hit an all-time high.

Bullish outside reversal weeks were also seen in Thailand’s SET and Malaysia’s KLSE.

The latter is revealing on the back of a weak Ringgit.

The S&P 500 is still overbought. It has risen for 15 of its past 17 weeks.

The CAC and DAX made a new all-time highs.

The Dow Jones Industrial Average has now spent the past 11 weeks in overbought territory.

Amsterdam’s AEX continues to make new all-time highs.

The Philippines Stock Exchange has put together a 5 week winning streak.

Italy’s MIB has traded to its highest point since June 2008.

Turkiye’s BIST has risen for 8 consecutive weeks making for a 24% (in TRY terms) return.

And the Shaghai Compsoite, CSI 300 and the HSCEI has have risen 10% over the past couple weeks……in amongst all of that pessimism.

Commodities were mostly weaker. 

Uranium isn’t overbought anymore.

Nickel isn’t oversold.

Hot Rolled Coil Steel is nearing an extreme,

Cattle is streaking ahead, positing 8 consecutive winning weeks and closing higher in 10 of the past 11 weeks.

Nickel, Palladium, Cocoa and shipping rates had a good week.

Energy prices, industrial metals, grains, Coffee were the largest losers.

Lithium Hydroxide prices was unchanged for the week, once again, again.

Lithium Hydroxide has now spent 33 consecutive weeks in weekly oversold territory.

Heating Oil has fallen 9.5% in the past week and trading it must be a nightmare.

Cotton broke its 6 week winning streak.

Soybeans and Corn are registering oversold extremes. 

Soybeans are in a 10 week losing streak and have fallen 14 of the past 15 weeks.

And Henry Hub Natural Gas prices made an new all-time lows.

Currencies was were the action was.

The U.S. Dollar (DXY) Index broke its 7 week winning streak.

The AUD was firmer. The CAD was lower. The EUR mixed. The GBP stronger. The JPY weaker.

The AUD/JPY saw its highest intra-week levels and close since December 8, 2014, although its not at an overbought extreme. 

GBP/JPY is at its highest price since August 3, 2015.

The Japanese Yen has fallen for 7 of the past 8 weeks versus USD.

MYR/USD – all time low, suggests buying Malaysian Ringgit 

Colombian Peso is in a 8 week losing streak again the USD.

DKK/USD broke its 5 week losing streak.

The IDR/USD is in a 4 week losing streak.

The Singapore Dollar broke its 7 week losing streak vs USD.

And the ZAR/USD had a bearish outside reversal week.

The larger advancers over the past week comprised of;

Baltic Dry Index 15.9%, Lean Hogs 2.3%, Newcastle Coal 1.9%, Nickel on LME 7.1%, Nickel on CX 3.6%, Orange Juice 2.1%, Palladium 3.8%, Rice 2%, Wheat 1.8%, Shanghai 4.9%, CSI 300 3.7%, CAC 2.6%, China A50 2.6%, DAX 1.8%, DJ Transports 1.9%, MIB 3.1%, HSCEI 3.7%, HSI 2.4%, IBEX 2.5%, Pakistan’s KSE 4.9%, Nasdaq Biotechs 1.8%, SMI 1.7%, SOX 1.9%, Nasdaq Transports 2.7% and S&P 500 rose 1.7%.

The group of largest decliners from the week included;

Aluminium (2.1%), WTI Crude (2.5%), Heating Oil (4.2%), JKM LNG (5.2%), Coffee (3.4%), JKM LNG in Yen (5%), Tin (3.8%), Gasoline (2.7%), Robusta Coffee (3.5%), Sugar (2%), SPGSCI (1.4%), Dutch TTF Gas (7.6%), Brent Crude (1.9%), Gasoil (1.7%), Uranium (5.9%), Silver in AUD (2.5%), Silver in USD (2%), Corn (4%), oats (4.7%), Soybeans (2.9%), MOEX (3.1%), KRE Regional Banks (1.7%), Chile (2.3%) and the ASX Materials fell 1.7%. 

February 25, 2024

by Rob Zdravevski

rob@karriasset.com.au

Scarcity lies in public not private

I have attached a graphic to illustrate the number of companies listed on the ASX as they fall within various market capitalisation bands. They are also expressed as a percentage of the total amount of listed entities.

In October 2000 I first wrote a note about the shrinking amount of companies listed on the Australian Stock Exchange in the form of phrase which I refer to as “de-equitisation”.

The de-equitisation of the ASX

Then in November 2023, I reprised the topic with this note,

The de-equitisation of the ASX

While more Australian publicly listed companies will ‘take too early’, I think that the opportunity continues to lie within the public markets rather than the fantastically touted ‘private equity’ market.

Since the great American de-equitisation commenced, 20 years ago, the S&P 500 has risen at an annual compounded rate of approximately 8.6%. Some reports of private equity funds suggest that they rose around an average annual rate of return of 11.4%.

Whilst there is a notable difference, the S&P 500 metric is a cash return.

I can’t tell if those private equity returns involved much leverage at very low terms of borrowing rates…..but I suspect so.

Today, interest rates aren’t as comparatively low.

Buying scarcity is my motto and Australia (and the world) has exponentially more privately held companies that publicly listed.

February 23, 2024

by Rob Zdravevski

rob@karriasset.com.au