rob zdravevski's blog

Macro Extremes (week ending December 29, 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

SHY – 1-3 year Treasury ETF

Coffee

Platinum

AUD/INR

AUD/SGD

AUD/USD

AUD/ZAR

CAD/USD

EUR/USD

NZD/USD

JPY/USD

SGD/USD

Nasdaq Biotech Index

ASX Materials Index

ASX 200 Index

Overbought (RSI > 70)

Cocoa

Uranium

Hot Rolled Coil Steel

Iron Ore

Dow Jones Industrials

Nasdaq 100

Philadelphia Semiconductor Index (SOX)

BOVESPA

NIFTY 

SENSEX

And Mexico’s IPC Index

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)

British, Portugal, Swedish 10 year government bond yields

TBX

U.S. 5 year minus 3 month yield spread

DXY (U.S. Dollar) Index

USD/MYR

Istanbul’s BIST 100 Index

Oversold (RSI < 30)

Greek and South Korean 10 year government bond yields

Nickel on India’s MCX Exchange

Lithium Hydroxide

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

Sugar

Notes & Ideas:

Government bond yields again fell everywhere, again.

The exceptions were the rising yields of the German, French, Spanish, Italian, Portuguese, Swedish and Greek 10’s. The latter broke its 6 week losing streak.

The Swiss 10’s have risen for the past 2 weeks, since recently being oversold.

The Aussie 10’s have fallen for 5 weeks and have declined for 8 weeks of the past 9.

Many other bond yields are in 5 week losing streaks.

The South Korean 10’s are in a 10 week losing streak and are classic example of a mean reversion story, while the Brazilian 10’s have declined for 8 weeks of the past 10.

Finally, ‘TBT’ the U.S. Bond ETF has fallen for 9 of the past 10 weeks.

Equities were mixed with many indices closing within +/- 0.8% of their previous weeks closing price.

CSI 300 Index are no longer oversold following the lift in Chinese and Hong Kong equities.

However, many streaks continue.

Chile’s and Sweden’s main index are in 7 week winning streaks (the latter is approaching all-time highs), while the Nasdaq Composite stretches its advancing streak to 8 weeks, the S&P 500 and Dow Jones Industrials make it 9 weeks and Mexico’s IPC Index has climbed for 10 consecutive weeks.

Meanwhile, the S&P MidCap 400 and the Russell 2000 both broke their 6 week rising streaks.

And the SOX is at an all-time high.

Commodities were mixed with a slight bias towards declining prices.

Weakness was led by energy, shipping and base metals.

Strength was seen in some industrial metals. Grains and agricultural’s were mixed.

Cocoa had a bearish outside reversal week.

Iron Ore prices have risen 10 out of the past 11 weeks.

Meanwhile U.S. Midwest Hot Rolled Coil (HRC) Steel prices have climbed for 11 consecutive weeks, rising 62% over that time and is in its 5 running week of being an ‘overbought extreme’. (hint: they were oversold prior to that rally commencing)

Uranium broke its 6 week rising trend.

Aluminium has risen 14% over the past 4 weeks.

Orange Juice prices have fallen for 6 consecutive weeks (falling 27% over that time) while Sugar’s declining weekly streak extends to 8.

Amongst currencies, the U.S. Dollar saw general weakness, again.

SEK/USD is nearing an overbought extreme and closing in on an (upward) mean reversion. This suggests Swede’s should prepare to sell some of their strong Krona and buy USD. While this should make for holidaying in the United States at its cheapest at anytime over the past 18 months, SEK strength should start to affect the export prospects of Swedish domiciled businesses.

More on this topic in a later note.

The AUD was mostly flat against various pairs, with a slight bias towards lower week over week closing prices, thus taking a break from its recent strength.

The Euro was weaker except against the USD.

The Yen was notably stronger.

Interestingly, while the JPY/USD is appearing in the extremes list this week, it is ‘miles’ away from competing a long-term mean reversion.

The larger advancers over the past week comprised of;

Aluminium 2.5%, HRC 5.7%, Platinum 2.8%, Urea Middle East 1.6%, Oats 7.3%, Wheat 1.9%, KOSPI 2.2%, NIFTY 1.8%, Straits Times 3.2%, TAIEX 1.9%, ASX Materials 1.6%, Shanghai Composite 2.1%, CSI 300 2.8%, China A50 2.2%, HSCEI 5.1% and the Hang Seng rose 4.3%.

The group of largest decliners from the week included;

Rotterdam Coal (8%), Baltic Dry Index (10.8%), Cocoa (2.7%), WTI Crude (2.9%), Lean Hogs (4.3%), Heating Oil (3.7%), JKM LNG (3.6%), Coffee (2.3%), Lumber (2.6%), Lithium (1.5%), Tin (1.5%), Newcastle Coal (2.2%), Natural Gas (3.7%), Orange Juice (4%), Palladium (9.4%), S&P GSCI (1.5%), Dutch TTF Gas (5.3%), Brent Crude (2.3%), Gasoil (5%), Silver in AUD (1.9%) and Silver in USD fell 1.7%.

December 31, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending December 22, 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

IEI

SHY – 1-3 year Treasury ETF

Coffee

Lumber

AUD/INR

AUD/SGD

AUD/USD

CAD/USD

NZD/USD

SEK/USD

Dow Jones Transports

ASX 200

ASX Materials Index

Overbought (RSI > 70)

Cocoa

Uranium

Hot Rolled Coil Steel

Dow Jones Industrials

Nasdaq 100

Philadelphia Semiconductor Index (SOX)

BOVESPA

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

Mexico’s IPC Index

India’s NIFTY and SENSEX equity indices

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

German, U.S. and British 2 year government bond yields 

British 3 year government bond yield

German and British 5 year government bond yield

Canadian, Swiss, German, Spanish, French, British, Portuguese and Swedish 10 year government bond yields

U.S. 5 year bond yield minus the 5 year break-even inflation yield rate

U.S. 5 year minus 3 month yield spread

Oversold (RSI < 30)

Chilean 2 year government bond yield

Greek 10 year government bond yields

Nickel on India’s MCX Exchange

Lithium Hydroxide

CSI 300 Index

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

Sugar

Notes & Ideas:

Government bond yields again fell everywhere, again.

The exception were the rising Canadian and Swiss 10’s.

The Aussie 10’s have fallen for 4 weeks and 7 of the past 8.

In fact, many bond yields are in 4 week losing streaks.

The Greek 10’s have fallen for 6 consecutive weeks.

The South Korean 10’s are in a 9 week losing streak and are classic example of a mean reversion story.

Speaking of which, the U.S. 10 year breakeven inflation rate also mean reverted this week.

Equities were biased higher for the week extending most gains from the preceding 4 weeks.

Most of Europe’s equity indices are possibly showing signs of consolidation as they were subdued for week.

As Spain’s IBEX left ‘overbought extreme’ territory a couple weeks ago, other new entrants have entered that category this week.

The ASX 200 being one of them.

Selected Chinese indices declined again.

Inversely, the Shanghai Composite is nearing an oversold quinella as it closed at its lowest price since May 25, 2020.

Chile and the S&P MidCap 400 have also risen for the past 6 weeks. 

The Russell 2000 is in a 6 week winning streak and has risen 7 of the past 8 weeks compiling a 29% over that time.

The Nasdaq Composite, the S&P 500 and Copenhagen’s OMX 25 have completed 8 consecutive rising weeks.

Mexico’s IPC Index leads the pack with a 9 weeks of positive gains.

While India’s SENSEX broke its 7 week winning streak 

And the SOX is at an all-time high.

Commodities were mixed.

The Commodity indices rose slightly and aren’t oversold this week.

Broadly energy and metals rose while grains and ‘softs’ declined.

JKM KLNG has moved out of last week’s oversold position.

Aluminium has risen 8% in the past fortnight.

U.S. Midwest Hot Rolled Coil Steel has spent its 4th week on overbought territory. 

Orange Juice has fallen 23% over 5 straight losing weeks. (Note: it was overbought prior to this decline)

Platinum completed its (upward) mean reversion.

Sugar has tanked 26% in its 7 week losing streak.

Amongst currencies, the U.S. Dollar saw general weakness.

The Australian Dollar was firmer, again.

The AUD/JPY broke a 3 week losing streak, perhaps aiding the risk-on sentiment seen in equities.?

The AUD/USD is at its highest close since July 10, 2023

The CAD & EUR were mostly firmer

And the Yen was weaker.

The larger advancers over the past week comprised of;

Aluminium 3.1%, Cocoa 1.6%, WTI Crude 2.5%, Heisting Oil 1.5%, Coffee 1.9%, Lumber 3.3%, Tin 2%, Natural Gas 4.8%, Palladium 1.8%, Platinum 3.1%, Dutch TTF Gas 3%, Urea U.S. Gulf 1.6%, Brent Crude 2.6%, Uranium 5.5%, Silver 1.5%, Gold 1.7%, China A50 1.5%, BOVESPA 2%, S&P SmallCap 600 2%, MOEX 1.9%, Russell 2000 2.3%, FTSE 250 2.2%, Nasdaq Biotech 1.8%, Copenhagen 2.3%, Helsinki 2%, DJ Transports 2.4%, TSX 1.7% and FTSE 100 rose 1.6%.

The group of decliners included;

Australian Coking Coal (2%), Baltic Dry Index (10.8%), LNG JKM in Yen (5.2%), Lithium (2%), Newcastle Coal (4.2%), Nickel (3.4%), Orange Juice (12.3%), Sugar (6.2%), Urea Middle East (2%), Corn (2.1%), Oats (4.3%), Soybean (1.9%), Wheat (2.1%), HSCEI (3.7%), Hang Seng (2.7%) and Istanbul’s BIST Index fell 6.2%.

December 24, 2023

by Rob Zdravevski

rob@karriasset.com.au

Merry Christmas

Don’t trade the headlines, once again !

Once again, my reminder to clients is not to trade the headlines.

Crude Oil spurts 5-7% higher in the past 7 days over some mob in Yemen not many have heard of until the media helps many become familiar with their name, cause or associations, now badgering ships passing through the Red Sea.

Spare me !

The global powers with economic interests will put a stop to it and the companies with a commercial interests will simply cease putting cargoes at risk.

It is at one’s perils if you have gone long Oil and short Shipping, based purely on this headline.

December 20, 2023

by Rob Zdravevski

rob@karriasset.com.au