Macro Extremes (week ending October 11, 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.

* denotes multiple week inclusion

Extremes above the Mean (at least 2.5 standard deviations)

Brazilian and Turkish 10 year government bond yield

U.S. 5 year bond yield minus the U.S. inflation rate (YoY) spread

U.S. 10 year bond yield minus the U.S. inflation rate (YoY) spread

Shanghai Composite *

CSI 300 *

HSCEI *

Hang Seng *

Nasdaq Transports

And Australia’s ASX Small Caps *

Overbought (RSI > 70)

Middle East Urea *

Gold as priced in AUD, CAD, CHF, EUR, GBP & USD *

Dow Jones Industrials

And Toronto’s TSX *

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

Pakistan’s KSE *

Extremes below the Mean (at least 2.5 standard deviations)

None

Oversold (RSI < 30)

U.S. 3 month government bill yield *

Australian Coking Coal

U.S. Midwest Hot Rolled Coil Steel *

North European Hot Rolled Coil Steel *

Lithium Carbonate *

Lithium Hydroxide *

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

None

Notes & Ideas:

Broadly, it was a week to ‘leave the bat on the shoulder’ and there was nothing to do.

Global government bond yields mildly rise, adding to last week’s move.

Yields across the UK and U.S. curve are in a 4 week rising streak.

The US minus German 10 year spread has also risen for 4 consecutive weeks.

While the US 5 year breakeven inflation rate and and the US 5 year yield minus US 3 month bill spread have both risen for 5 weeks.

U.S. 2’s are their highest weekly close in 2 months.

Equities were mixed.

Understandably, Chinese and Hong Kong indices gave up some of the previous weeks gains.

Last week, I wrote that around July 2020 – February 2021 was the last time we saw Chinese A50, CSI 300 and Shanghai Composite register an overbought quinella. 

This week, they only appear in the overbought category because they traded up to their 2.5 standard deviation mark early in the week.

In addition, the China A50, HSCEI, Hang Seng and Egyptian indices had bearish outside reversal weeks.

DJ Industrials notable entrant in overbought this week.

The Nasdaq Composite has put together a 5 week winning streak as have the S&P MidCap 400, Nasdaq 100, S&P 500 and the TSX.

The Philippines PSE winning run ended at 5 weeks.

And Thailand’s SET is closing in on a overbought quinella reading.

Commodities were the busiest of the 4 assets classes featured in Macro Extremes.

The bia was slightly tilted to weakness.

Gold across various currencies remains overbought.

Silver and Sugar aren’t overbought this week.

Coking Coal joins Steel prices in oversold territory.

The Baltic Dry Index has fallen 15% over the past fortnight.

Lean Hogs are in a 5 week winning streak.

Sugar, Tin, Nickel and CRB Index all broke their 4 week winning streaks.

U.S.Midwest Hot Rolled Coil Steel has spent 20 weeks being oversold.

And Lithium Hydroxide has now spent 65 consecutive weeks in weekly oversold territory.

Currencies action was dominated by U.S. strength, again.

The DXY Index is at its highest close in 2 months.

All currency pairs which are appeared in last week’s edition no longer appear.

The Aussie fell while the Swiss rose.

The Yen also rose, albeit slightly.

CHF/AUD broke its 4 week losing streak and AUD/EUR broke its 4 week rising run.

And the British Pound was flat to slightly lower.

The larger advancers over the past week comprised of;

Cocoa 9.5%, WTI Crude Oil 1.6%, Heating Oil 1.4%, Lithium Hydroxide 1.7%, Orange Juice 2.3%, Palladium 7.1%, Gasoline 2.7%, Rubber 1.6%, Gold in CAD 1.5%, Wheat 1.6%, KBW Bank Index 4%, Dow Jones Transports 2.7%, MIB 2.1%, TAIEX 2.7%, KRE Regional Banks 3.9%, KSE 2.3%, S&P Midcap 400 1.2%, Nikkei 225 2.5%, Copenhagen 1.4%, SET 1.8%, SOX 2.5%, Nasdaq Transports 2.7%, WIG 1.8%, ASX Financials 2.4% and the ASX Small Caps rose 2.5%.

The group of largest decliners from the week included;

Australian Coking Coal (4.5%), Rotterdam Coal (2.1%), Bloomberg Commodity Index (1.3%), Baltic Dry Index (6.2%), China Coking Coal (4.3%), North European Hot Rolled Coiled Steel (1.8%), Copper (1.8%), US Midwest Hot Rolled Coiled Steel (2.6%), Arabica Coffee (2.1%), Tin (4.1%), Natural Gas (7.8%), Nickel (2.9%), Shanghai Rebar (1.9%), Robusta Coffee (4.7%), Sugar (3.4%), Dutch TTF Gas (2.7%), Middle East Urea (2%), Silver in AUD (1.4%), Silver in USD (2.1%), Corn (2.1%), Oats (2.2%), Soybeans (3.1%), Shanghai Composite (3.6%), CSI 300 (3.3%), China A50 (10.6%), Egypt (3%), HSCEI (6.6%), Hang Seng (6.5%), MOEX (1.8%), PSE (2.1%), BIST (2.6%) and the ASX Materials Index fell 1.4%.

October 13, 2024

by Rob Zdravevski

rob@karriasset.com.au