Macro Extremes (week ending October 4th, 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)

Turkish 10 year government bond yield

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

Silver in AUD & USD *

AUD/CAD *

AUD/INR *

AUD/USD *

BIST

And Australia’s ASX Small Caps *

Overbought (RSI > 70)

Sugar *

Urea (Middle East and U.S. Gulf)

Gold as priced in AUD, CAD & USD *

MYR/USD *

Egypt

Karachi *

Philippines PSE *

And Toronto’s TSX

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

Gold in CHF, EUR & GBP

Shanghai Composite 

CSI 300 

HSCEI *

Hang Seng *

Extremes below the Mean (at least 2.5 standard deviations)

CAD/AUD *

EUR/GBP *

Oversold (RSI < 30)

U.S. 3 month government bill yield *

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, many things that were trading at ‘extremes’ last week, are no longer so, this week.

Global government bond yields rose.

Yields across the UK curve are in a 3 week rising streak.

Japanese yields rose strongly, recovering last weeks decline.

Commensurate to bond yields being oversold recently, inversely, this publication listed iShares 1-3 year Bond ETF (SHY) being overbought. It was implying to consider the antithesis of being long bonds. This past week, SHY fell 1%. This gave up 33% of the capital gain seen over the past 6 months. 

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

The U.S. 5 year yield minus the 3 month bill spread has climbed for 4 straight weeks.

And various U.S. yield spreads listed last week have broken their 6 week rising streak.

Equities were mainly lower, contrary to any bullish feelings being felt.

The pocket of strength was contained to Chinese and Hong Kong indices.

In fact, the Chinese market was only open on Monday.

The July 2020 – February 2021 period was the last time we saw Chinese A50, CSI 300 and Shanghai Composite register an overbought quinella. 

The Nasdaq Composite has put together a 4 week winning streak.

The Philippines PSE is in a 5 week winning run.

The ASX Financials Index has fallen 6.5% in the past fortnight after being overbought in the week prior.

And Toronto’s TSX makes a return to overbought territory.

Commodities were mixed, although the indices strength due to their weighting to energy contracts.

The Bloomberg Commodity Index has risen 8.6% over the past 4 weeks.

Gold across various currencies remains overbought as does Silver.

Urea is a new overbought entrant.

Coffee isn’t overbought anymore.

Cocoa and Shipping Rates took a shellacking.
While Coking Coal prices bounced out from oversold territory.

Sugar, Tin, Nickel and CRB Index are in 4 week winning streaks, while Natural Gas its.

Shanghai Rebar prices have soared 15% over the past 2 weeks.

Soybeans broke its 6 consecutive weeks of positive closes.

U.S.Midwest Hot Rolled Coil Steel has spent 19 weeks being oversold.

And Lithium Hydroxide has now spent 64 consecutive weeks in weekly oversold territory.

Currencies action was dominated by U.S. strength.

The DXY Index broke its 4 week losing streak and rose 2%.

Hence I had a confusing read of currencies during the week.

Risk-off was seen in equities but the AUD and CAD rose.

And the Yen fell.

CHF/AUD has fallen for 4 consecutive weeks.

The AUD has risen for 4 weeks against the Euro.

The GBP was generally weaker.

And the THB/USD is no longer overbought as the Thai Baht broke its 4 weeks rising trend, falling 3% against the USD.

The larger advancers over the past week comprised of;

Australian Coking Coal 19.7%, Rotterdam Coal 3.2%, Bloomberg Commodity Index 1.8%, WTI Crude Oil 9.1%, DXY Index 2.1%, Lean Hogs 2.4%, Heating Oil 7.5%, Tin 4.1%, Newcastle Coal 2.3%, Nickel 5.7%, Gasoline 8.8%, Shanghai Rebar 12.1%, S&P GSCI 4.6%, CRB Index 2%, Dutch TTF Gas 6.2%, Urea U.S. Gulf 3.9%, Brent Crude Oil 8.5%, Gasoil 8.4%, Urea Middle East 5.3%, Silver in AUD 3.4%, Silver in USD 1.8%, Gold in CHF 1.9%, Gold in GBP 1.7%, Gold in ZAR 2%, Corn 1.6%, Wheat 1.7%, Shanghai Composite 8.1%, CSI 300 8.5%, China A50 16.3%, HSCEI 11.7%, Hang Seng 10.7%, KSE 2.8% and Oslo rose 3%.

The group of largest decliners from the week included;

Baltic Dry Index (8.6%), Cocoa (14.6%), Arabica Coffee (4.4%), Lumber (1.9%), Lithium Carbonate (5.6%), Lithium Hydroxide (5.1%), Natural Gas (1.7%), Palladium (2.4%), Platinum (2%), Robusta Coffee (7.6%), Rubber (1.6%), Soybeans (2.6%), All World Developed ex USA (3.5%), Budapest (1.5%), CAC (3.2%), DAX (1.8%), DJ Transports (2.3%), MIB (3.3%), IBEX (2.6%), IDX (2.8%), MOEX (1.9%), TAEIX (2.3%), KLSE (1.8%), KOSPI (3%), FTSE 250 (1.6%), Nikkei 225 (3%), NIFTY (4.5%), Copenhagen (2.3%), SENSEX (4.5%), SMI (1.9%), Vietnam (1.6%), BIST (6.8%) and the ASX Financials fell 2%.

October 6, 2024

by Rob Zdravevski

rob@karriasset.com.au