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Macro Extremes (week ending October 13, 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

U.S. 10 year bond minus 2 year yield spread

U.S. 10 year bond minus 5 year yield spread

Baltic Dry Index

Gold Volatility Index

Natural Gas

JKM LNG 

Overbought (RSI > 70)

Chilean and Turkish 10 year government bond yield

U.S. 20 year government bond yield

U.S. 3 month bill yields

U.S. 10 year bond minus German 10 year yield spread

Orange Juice

Rubber

Uranium

Australian Coking Coal 

USD/CLP

USD/JPY

USD/IDR

And Russia’s MOEX

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)

Copper/Gold Ratio

Lean Hogs

Nickel

Palladium

Dutch TTF Gas

BRL/USD

MXN/USD

Indonesia 

Mexico

SET

And ASX 200 Industrials

Oversold (RSI < 30)

U.S. Mid West Hot Rolled Coil Steel

Lithium Hydroxide

JPY/USD

CLP/USD

IDR/USD

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

None

Notes & Ideas:

Government bond yields fell, notably, everywhere……breaking multi week rising streaks such as the 5 week run seen in the U.S. 10 year bond.

The global wave of last week’s overbought government bond yields (and ETF’s) are not in this week’s list.

U.S. 5-7 year corporate bond yields aren’t overbought anymore.

Equity indices has a subdued week, however the bias was slightly higher, giving investors a little bounce from last week’s weakness.

So much so, that all of the stock indices appearing as oversold in last week’s edition, are no longer so.

Small and Mid Caps are exhibiting most of the weakness, while Asian markets are showing some resilience, led buy the Nikkei 225.

The Russell 2000 has fallen 4% over the past 2 weeks and 14% in the last 12 weeks.

The U.S. Regional Banking Index is at its lowest close since late June 2023.

The KOSPI bounced from last week’s oversold reading, which was its lowest close since March 2023.

The FTSE 250 is in a. 4 week losing streak having fallen 6.5% over the past 4 weeks.

Turkiye’s BIST 100 isn’t overbought anymore after spending 12 weeks in that territory.

And Thailand SET Index broke a 5 week losing streak.

For some other reference, the S&P 600 Small Cap slumped 1%, the Mid Cap 400 eased 0.6% and the Nasdaq Composite fell 0.2%.

The S&P 500 rose 0.5%, the Nasdaq 100 squeezed out a 0.2% advance, the Dow Jones Industrials improved 0.8% and the ASX 200 climbed 1.4%.

The Commodities Indices rose during the week, led by the weighting of the energy and precious metals prices, thus reversing the weakness seen last week.

The Baltic Dry Index and Orange Juice have risen for 6 consecutive weeks.

Gold (as priced in CAD) rose 5% for the week which put an end to its 5 week losing run.

Nickel ended its 4 losing streak. 

Silver nearly recovered all of it slump over the previous fortnight. 

Natural Gas fell 3% after soaring 25% in the previous 2 weeks.

Uranium remains overbought for an 9th consecutive week.

Orange Juice rose 2% and closed at another new all-time high.

U.S. Mid West Hot Rolled Coiled Steel has been oversold for 7 weeks.

Soybeans broke its 6 weeks losing streak, while Lithium Hydroxide declining streak extends to 14 consecutive weeks.

And Australian Coking Coal maintains a 14 week winning streak.

Amongst currencies, the Australian Dollar was weaker again.

Last week, I wrote that it was weaker except agains the THB. This week, the AUD broke its 6 week winning streak against the Thai Baht.

The Canadian Loonie formed.

The CHF/AUD is heading back towards overbought territory.

The Euro is close to being oversold.

The MYR/USD is in a 7 week losing streak.

And the USD/INR continues its 6 week winning streak.

The larger advancers over the past week comprised of;

Rotterdam Coal 12.7%, Bloomberg Commodity Index 2.7%, WTI Crude 5.9%, Gasoil 6.8%, Heating Oil 10.7%, Coffee 6.1%, Lumber 2.7%, LNG JKM 28.6%, Tin 2.3%, Newcastle Coal 6.5%, Orange Juice 2.3%, Gasoline 3.3%, S&P GSCI 3.5%, CRB Index 2.6%, Dutch TTF Gas 41.6%, Brent Crude Oil 7.7%, Silver in AUD 6.6%, Silver in USD 5.2%, Gold in AUD 7%, Gold in CAD 5.4%, Gold in USD 5.5%, Wheat 2%, HSCEI 2.4%, Hang Seng 1.9%, KLSE 1.9%, KOSPI 2%, NKY 4.3%, Oslo 4.8%, Stockholm 1.7%, Chile 2.3%, TAEIX 1.6%, FTSE 1.4%, ASX Materials 2.5% and ASX Small Caps rose 1.8%.

The group of decliners included;

Aluminium (2.1%), China Coking Coal (6.2%), Lean Hogs (5.5%), Natural Gas (3.1%), Urea U.S. Gulf (2.6%), Oats (9.6%), KRE (1.6%), BIST (4.2%) and the Russell 2000 fell 2%.

October 15, 2023

by Rob Zdravevski

rob@karriasset.com.au

Big cities won’t die – JLL

I’m working on how to best express a contrarian investment view within the ‘out of favour’ office building market amongst the world’s great cities.

I think the ‘great’ cities of the world won’t die, let alone become ghost towns.

As I trawl through a host of businesses and assets exposed to this theme…I started re-looking at the leading companies in property management and leasing industry.

Jones Lang LaSalle’s (JLL) stock price chart is an example of knowing when to buy and sell and perhaps when to trim, scalp or add to your position.

For 10 years, the stock price has spent most of its time trading within 30% of either side (about $40) of today’s $139 price.

When I marry the metrics in the study below along with a few others (not shown), the circles denotes moments to sell and the rectangles are moments to buy and accumulate.

There is a time to buy and a there is a time to sell…….

after all, JLL’s stock price is still trading at the same price as marked by “X” along the horizontal red line in the chart below.

For the “buy and hold” crowd, depending when they bought, many are still ‘underwater’ and for some, it may date back to 2015.

October 12, 2023

by Rob Zdravevski

rob@karriasset.com.au

CSL – Not yet !

CSL.AX registers a weekly oversold reading for only the 3rd notable time since its publicly listed, 30 years ago, back in 1994.

Mean reversion is one thing, then oversold on a weekly basis is another measure but it looks like it has lower to go before the stock price resembles some type of exhaustion.

The stock price of this Australian multi-specialty biotechnology company will likely mimic the various ‘metrics’ (not stock price) which it experienced in August 2011 before I think its risk/reward skew is ravishing.

October 12, 2023

by Rob Zdravevski

rob@karriasset.com.au

Still time to sell your strong Euro versus the Yen

I think this call to sell Euro / Buy Yen made on June 30, 2023 remains valid.

Selling Euro / Buying Yen

October 11, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending October 6, 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)

Australian, Brazilian, Swiss, German, Spanish, Greek, South Korean, French, Portuguese, Swedish and Turkish 10 year government bond yields

German 5 year government bond yield

U.S. 5 year bond minus 3 month bill yield spread

U.S. 10 year bond minus 2 year yield spread

U.S. 10 year bond minus 5 year yield spread

Baltic Dry Index

Gold Volatility Index

Natural Gas

Overbought (RSI > 70)

Japanese 10 year government bond yield

U.S. 5-7 year corporate bond yields

U.S. 3 month bill yields

Australian 10 year bond minus 2 year yield spread

Australian 10 year bond minus 5 year yield spread

Orange Juice

Uranium

USD/CLP

USD/JPY

And Turkiye’s BIST 100

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

Canadian, Italian, Chilean and New Zealand 10 year government bond yields

U.S. 5, 7, 10, 20 and 30 year government bond yields

TBT & TBX

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

U.S. 10 year bond yield minus 10 year inflation break-even rate

U.S. 10 yer bond yield minus German 10 year bond yield 

Australian Coking Coal 

China Coking Coal 

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

IEF & IEI

Copper

Gasoline

Silver (in AUD & USD)

Gold (in CAD)

Soybeans

BRL/USD

MXN/USD

CAC 

DAX
HSCEI 

IBEX

S&P Small Cap 600

KOSPI

FTSE 250

Nikkei 225

ASX Small Caps

ASX 200 Industrials

ASX 200

TSX

S&P Small Cap 600 Value

Nasdaq Biotechnology Index 

Copenhagen

Russell 2000

And Thailand’s SET Index

Oversold (RSI < 30)

U.S. Mid West Hot Rolled Coil Steel

Lithium Hydroxide

JPY/USD

CLP/USD

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

TLT & IEF

Nickel

THB/USD

IDR/USD

Notes & Ideas:

Government bond yields rose again except for the German 2’s and 5’s and the same for the British 2’s.

This week’s list has seen a few more names join the overbought extremes with many nearing an appearance closing in on wi

However, while highs over recent times are now being made, the past several weeks sees many global government bond yields yet to break the previous major cycle highs of 2007 and 2011.

Note those U.S. yields which appear in the ‘quinella’ section of this week’s list.

Most Equity indices continued more of their recent weakness with the past week gathering a little steam in the decline from last week’s ‘pause’.

This week’s list of extremes features the most equity indices in some months visiting the oversold end of the pendulum.

The recent exception has been the larger U.S. indices have generally held up for the 2nd consecutive week. For example the S&P 500 rose 0.5% and the Nasdaq Composite rose 1.6%.

Much more damage is being seen in the smaller cap indices. The Russell 200 has fallen 13% over the past 10 weeks. This past week’s decline of 2% was less worse due to Friday’s 1.2% rise.

Copenhagen’s index mean reverted.

Thailand’s SET has fallen for 5 consecutive weeks.

The Nikkei 25 is 10% below that lauded peak a couple months ago

And more acutely, the KOSPI has now fallen 7.5% in the past 3 weeks.

Most Commodities declined during the week.

Energy and Precious Metals weighed on the performance of the commodity indices.

Natural Gas, Shipping Rates and Agricultural were amongst the few were prices rose.

Gasoil isn’t overbought anymore for a 12% decline this past week, while Gold in USD mean reverted.

The Baltic Dry Index and Orange Juice have risen for 5 consecutive weeks, with the former soaring 64% and is now overbought.

Amongst the weekly losing streaks, Soybeans and Gold (as priced in CAD) are at 5, Nickel and Gasoline have reached 4 (the latter also completed a mean reversion and has declined 18% in the past 3 weeks), Brent Crude is in its 3rd week

Silver in USD has fallen 8.5% in 2 weeks.

Natural Gas has soared 25% in the past 2 weeks, while Silver (in USD) has fallen 8.5% over the same time.

Nickel recorded a quinella of oversold extremes.

Uranium fell 5% but remains overbought for an 8th consecutive week.

Orange Juice closed at another new all-time high.

U.S. Mid West Hot Rolled Coiled Steel has been oversold for 6 weeks.

Soybeans have declined for 6 consecutive weeks, while Lithium Hydroxide declining streak extends to 13 consecutive weeks.

And Australian Coking Coal maintains a 13 week winning streak intact and is registering an overbought quinella, while having risen 52% over the past couple months.

Amongst currencies, the Australian Dollar was weaker against all except versus the IDR, THB and ZAR.

The latter pairing (AUD/ZAR) is in a 6 week winning streak.

The Euro was mixed. It’s small weekly gain against the USD saw an end to its 11 week losing streak.

The British Pound firmer for the week.

The big loser was the Colombian Peso versus the USD and it appears in this weeks list as such.

The AUD is in a 6 week consecutive week advance versus the Thai Baht.

The CAD/EUR broke its 6 week winning streak.

The DXY fell 0.1% for the week, ending its 11 weeks winning streak and that is the case specifically for USD/DKK.

The GBP/USD broke its 6 week losing streak.

The Malaysian Ringgit versus USD is in its 6th consecutive week of decline.

And the BRL/USD mean reverted.

The larger advancers over the past week comprised of;

Australian Coking Coal 9.2%, Baltic Dry Index 13.4%, Lean Hogs 2.3%, Natural Gas 14%, Orange Juice 7.9%, Corn 3.2%, Wheat 4.9% and the BIST 100 rose 1.6%.

The group of decliners included;

Aluminium (4.8%), Rotterdam Coal (4.1%), Bloomberg Commodity Index (2.2%), WTI Crude (8%), Gasoil (12.1%), Copper (2.7%), Heating Oil (11.6%), Lumber (2.1%), LNG JKM (3.8%), Lithium Hydroxide (5.8%), Tin (7.1%), Newcastle Coal (11.5%), Nickel (2%), Palladium (7.4%), Platinum (3.8%), Gasoline (8.6%), S&P GSCI  (5.6%), CRB Index (2.7%), Dutch TTF Gas (8.7%), Brent Crude (8.4%), Urea Middle East (2.3%), Uranium (4.9%), Silver in AUD (1.9%), Silver in USD (2.7%), Oats (2%), KBW Bank Index (2.8%), MIB (1.5%), HSCEI (2.8%), Hang Seng (1.8%), IBEX (2%), BOVESPA (2.1%), S&P Small Cap 600 (2.3%), KOSPI (2.3%), FTSE 250 (3%), S&P MidCap 400 (1.8%), Mexico (2.4%), Nikkei (2.7%), Oslo (3.1%), Helsinki (1.9%), Russell 2000 (2%), SET (2.2%), S&P Small Cap 600 Value Index (3%), Chile (3%), TSX (1.5%), FTSE 100 (1.5%), ASX 200 (1.3%), ASX 200 Industrials (1.9%) and the ASX Small Caps fell 2.7%. 

October 8, 2023

by Rob Zdravevski

rob@karriasset.com.au

The case for equities to grind higher

Comparing U.S. real interest rates, in this case the U.S. 2’s minus YoY inflation rate.

Once Monthly overbought is achieved, observe subsequent real rates mean reversion/convergence.

The S&P 500 Index is the orange line.

October 5, 2023

by Rob Zdravevski

Karri Asset Advisors

rob@karriasset.com.au