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Macro Extremes (week ending November 17, 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

Rice

AUD/JPY

GBP/JPY

BOVESPA

Overbought (RSI > 70)

Turkish 10 year government bond yields 

Cocoa

Orange Juice

Rubber

Uranium

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

EUR/JPY

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

Chilean and British 2 year government bond yields 

And British 3, 5 and 10 year government bond yields.

Oversold (RSI < 30)

Lithium Hydroxide

Nickel 

Palladium

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

None

Notes & Ideas:

Government bond yields fell. Some have declined for 4 consecutive weeks.

Japanese 2 year bond yields fell sharply. The 5’s and 10’s also declined notably with the latter seeing a week on week change from 0.84% to 0.73%.

Swiss 10 year government bond yields were overbought last week and soon maybe entering oversold territory.

Equities had a positive week, almost everywhere.

So much so, no index appears in this week’s decliners list.

Chinese indices were subdued while Australian indices lagged the surging pack.

The ASX 200 rose 1%, the ASX Materials climbed 1.4% and the ASX Small Caps advanced 1.3%

The standout was the recently oversold ASX Industrials Index which soared 3.1% for the week.

It is worthy to note that various indices are now closing in on overbought territory, which tells me that this recent rally could be a short term trap.

Mexico’s index is in a 4 week winning streak.

Over the past 3 weeks, the DAX has risen 8%, the Nasdaq Composite has climbed 11%, while the KBW Bank Index has soared 16%.

Commodities generally rose, following a few weeks of weakness.

In fact, there were some substantial advancers as seen in the list below.

Silver, Palladium, Platinum and Orange Juice led the way.

Last week’s oversold entrants, Cotton, Coffee, Cattle, Newcastle Coal, Platinum, Oats….are no longer so.

Cocoa and Rubber are in the midst of 7 week winning streaks.

Energy contracts were still weaker, especially the Gases.

WTI Crude has closed at its lowest point since early July 2023. It is in a 4 week losing streak and had fallen It has fallen 15% over that time.

Incidentally, Brent Crude has also declined for 4 consecutive weeks.

Inversely, Heating Oil ended its 4 week losing streak, although its downtrend remains intact.

Natural Gas has slumped 14% over the past 2 weeks.

Baltic Dry Index rallied 23% in the past fortnight.

Uranium remains overbought for an 14th consecutive week.

while Lithium Hydroxide declining streak extends to 19 consecutive weeks,

And Silver had a bullish outside week.

Amongst currencies, the Australian Dollar was stronger, reversing last weeks weakness.

The Canadian Loonie was weaker along with the USD.

The DXY Index fell 1.9% for the week.

The Euro also exhibited strength.

The Yen remains weak and various pairs are appearing in the reciprocal overbought category.

The larger advancers over the past week comprised of;

Australian Coking Coal 2.1%, Baltic Dry Index 10.8%, Cocoa 2.3%, China Coal 2.5%, Cotton 5.4%, Gasoil 1.7%, Copper 4.2%, Lumber 5%, Tin 2.2%, Orange Juice 11.9%, Palladium 8.2%, Platinum 6.6%, Uranium 5.8%, Silver in AUD 4.1%, Silver in USD 6.6%, Gold in USD 2.2%, Rice 4%, AEX 1.7%, KBW Banks 6.9%, CAC 2.7%, DAX 4.5%, DJ Industrials 1.9%, DJ Transport 3.5%, MIB 3.5%, IBEX 4.2%, BOVESPA 3.5%, Indonesia 1.9%, S&P SmallCap 600 5.2%, Nasdaq Composite 2.4%, KRE Regional Banks 9.3%, KOSPI 2.5%, FTSE 250 4%, S&P MidCap 400 4%, Mexico 2.8%, Nasdaq Biotech 2.1%, Nasdaq 100 2%, Nikkei 3.1%, Copenhagen 4%, Helsinki 2.4%, Stockholm 3.9%, Russell 2000 5.6%, SET 1.9%, S&P Small Cap Value 5.4%, FTSE 100 2%, SMI 1.7%, SOX 4.3%, Chile 2.6%, S&P 500 2%, TAEIX 3.2%, Nasdaq Transports 3.7% and Toronto’s TSX rose 2.7%.

The group of decliners included;

Rotterdam Coal (3.1%), Coffee (2.3%), JKM LNG (3.9%), Lithium (1.9%), Newcastle Coal (3.1%), Natural Gas (2.4%), Gasoline (1.6%) and Dutch TTF Gas fell 3.4%.

November 19, 2023

by Rob Zdravevski

rob@karriasset.com.au

Happy Birthday Vida !

Equity markets are making good shapes

A monthly overbought ‘5 year forward real interest rate’ portends a trough in the S&P 500, 3 or 4 months hence.

The circles highlight the overbought 5 year real rate.

The rectangles point to the trough in the S&P 500.

November 16, 2023

by Rob Zdravevski

rob@karriasset.com.au

When inflation is oversold, I buy commodities

The U.S. Inflation Rate has been oversold (on a monthly basis) 7 times in the past 30 years.

This is represented by the blue line in the study below.

The most recent occurrence was a couple months ago.

Whenever this happens, probability points to a reasonable moment to accumulate commodities.

The orange line plots the S&P Goldman Sachs Commodity Index (SPGSCI).

November 15, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending November 10, 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

Swiss 10 year government bond yields 

Coffee

Overbought (RSI > 70)

Turkish 10 year government bond yields 

USD/JPY

Uranium 

And Rubber

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

Cocoa

EUR/JPY

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

Cotton

Coffee

Cattle

Newcastle Coal

Platinum 

Oats 

AUD/JPY

Oversold (RSI < 30)

Lithium Hydroxide

Nickel 

JPY/USD

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

Palladium

JPY/EUR

Notes & Ideas:

Government bond yields were mixed. The European and U.S. government bond yields were higher, although on a week to week closing basis, the advance wasn’t as much as the financial media would’ve led you to believe.

Furthermore, the U.S. bond yields still aren’t as high as those seen 3 or 4 weeks ago, which is evident in the 30 yer bond yield, which were actually lower this week.

Australian yields were flat to lower. Short duration British yields were lower.

Japanese bond yields fell and took a break from being overbought. 

In fact, readers may find it interesting to look back the past 4-5 editions of ‘Macro Extremes’ to note those bond yields which were overbought then…..and are no longer so, today.

And I need to look at the U.S. 10 year minus German 10 year yield spread as it’s nearing overbought territory.

Equities were subdued and mixed, with a slight bias for weakness.

The ones that bucked the weakness appear below mainly led by the Nasdaq.

The ASX 200 closed unchanged. Technically, it fell 0.02%.

The largest advancers for the week are listed at the end of this note.

And, all of the indices which appeared as oversold in the past week’s, are no longer so. 

Commodities were weaker, again. 

The weakness amongst energy contracts (for the 3rd consecutive week) weighed heavily on commodity indices. 

WTI Crude has closed at its lowest point since late July 2023. It has fallen 13% over the past 3 weeks.

Heating Oil is in a 4 week losing streak and has declined 16% in the past 4 weeks.

Gasoline was flat for the week although it’s interesting to note its 25% slump since August 2023.

Natural Gas fell 14% this week and as a result isn’t overbought.

This week sees Cotton, Coffee and Cattle return to being oversold.

Baltic Dry Index rallied 12%, making up half of the past fortnights decline.

Uranium remains overbought for an 13th consecutive week.

while Lithium Hydroxide declining streak extends to 18 consecutive weeks.

It looks like a change of trend approaching for the price of Corn.

Precious Metals are in a downdraft with Palladium and Platinum getting a hiding.

And I reflected on the recent overbought nature of Canadian Dollar priced Gold.

Amongst currencies, the Australian Dollar was weaker while the U.S. Dollar and Euro we’re stronger.

The AUD/EUR had an outside bearish week as did the AUD/IDR.

The BRL/USD fell a mere 0.10%, taking a break from its 4 week rising streak.

And as pre-empted in last week’s edition, the Japanese Yen is now registering extremes against the USD and the Euro.

The larger advancers over the past week comprised of;

Baltic Dry Index 12.4%, Cocoa 3%, Hot Rolled Coil Steel 2.3%, Tin 2.8%, Newcastle Coal 3%, Orange Juice 6.4%, Rice 5.6%, Bovespa 2%, Nasdaq Composite 2.4%, KOSPI 1.7%, Nasdaq 100 2.9%, Nikkei 225 1.9%, SOX 4% and the S&P 500 rose 1.3%.

The group of decliners included;

Australian Coking Coal (4.6%), Aluminium (1.8%), Bloomberg Commodity Index (3.4%), China Coking Coal (7.2%), WTI Crude (4.2%), Cotton (2.9%), Gasoil (10.7%), Copper (2.6%), Heating Oil (6.2%), Cattle (5.3%), Natural Gas (13.7%),  Palladium (13.3%), Platinum (10.5%), Sugar (1.7%), S&P GSCI (3.4%), CRB Index (3%), Dutch TTF Gas (3%), Brent Crude (4.1%), Silver in AUD (1.8%), Silver in USD (4.1%), Gold in CAD (1.7%), Gold in USD (2.7%), Corn (2.8%), Oats (6.8%), JKM LNG (2.2%), KBW Banking Index (2.1%), HSCEI (2.5%), Hang Seng (2.6%), S&P SmallCap 600 (3%), KRE Regional Bank Index (5.2%), S&P MidCap 400 (1.6%), Nasdaq Biotechs (4.3%), Russel 2000 (3.1%), SET (2.1%) and the S&P SmallCap Value Index fell 3.5%.

November 12, 2023

by Rob Zdravevski

rob@karriasset.com.au

An oversold {inflation minus commodity prices} ratio is good for equities.

Below is a study where I compare the ratio of the U.S. Inflation Rate (YoY) minus the S&P GSCI (Goldman Sachs Commodity Index) represented by the blue line, and when it trades to 2.5 standard deviations below its rolling monthly mean while its Monthly RSI also registered a reading of below 32.

The vertical lines show 8 moments over the past 40 years when that has occurred.

The most recent was only a few months ago.

Those moments also correspond to a longer term advance in the S&P 500, which is illustrated by the orange line.

November 7, 2023

by Rob Zdravevski

rob@karriasset.com.au