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Insights showcase topical observations from Qi.
How Qi data can be used to generate trade signals,
observe regime shifts or stress test different macro scenarios.
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16.09.2021
Factor Watch - Inflation
This week has seen US CPI undershoot, providing some support for the Fed’s argument that inflation is transitory; but UK inflation surge to 3.2%, a 10 year high.

The temporary versus sticky debate continues to rage but, from Qi’s perspective where inflation expectations in z-score terms are a core input across several models, a couple of things stand out:
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14.09.2021
Inflation
Today’s US CPI report will be viewed primarily in the context of the debate over how transitory current inflation really is. But it is worth taking stock of how global equity indices are reacting to inflation pressures. Which view it as healthy reflation, which see it as a headwind ?
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Cameron Venti Xkcaeep4Ui4 Unsplash
16.09.2021
Factor Watch - Inflation
This week has seen US CPI undershoot, providing some support for the Fed’s argument that inflation is transitory; but UK inflation surge to 3.2%, a 10 year high.

The temporary versus sticky debate continues to rage but, from Qi’s perspective where inflation expectations in z-score terms are a core input across several models, a couple of things stand out:
Friday
The UK CPI print was a 4 standard deviation event & expectations are now as far above trend as we have seen since 2009.

This matters for several UK financial assets. For example, lower UK real yields hurt cable, while they have also been a headwind for UK equities relative performance. It’s just out of regime but the FTSE vs. Stoxx 50 model shows falling UK inflation would help the FTSE outperform.

US inflation expectations are marginally above long term trend but it’s modest. Moreover, it is the smallest deviation from trend amongst the G4; below even Japan.

They’ve rolled over slightly this week but European inflation expectations remain two standard deviations above trend. The contrast with the US is the more striking given how important inflation differentials are for EURUSD fx.

They account for a third of model explanatory power & help explain why Qi model fair value has fallen from 1.1760 to 1.1660 over the last 2 weeks. The failure of European real yields to keep pace with the bounce in US real yields has hurt the Euro.
Juskteez Vu Tirxot28Znc Unsplash
14.09.2021
Inflation
Today’s US CPI report will be viewed primarily in the context of the debate over how transitory current inflation really is. But it is worth taking stock of how global equity indices are reacting to inflation pressures. Which view it as healthy reflation, which see it as a headwind ?
Qi quantifies the independent relationship between any equity index & inflation. The chart below captures that sensitivity on the horizontal axis; the further out to the right any market is, the greater the benefit it derives from reflation.

Then we add a valuation overlay – red dots are rich to macro, green are cheap, faded colours means that model is not in a macro regime. Some standouts:
Tuesday
The models on the left (with a negative relationship with inflation expectations) are all out of regime. Put another way, on Qi there isn’t a single equity market in a macro regime that see’s inflation as a bad thing. Equities don’t fear margin compression or Central Banks being compelled to tighten policy early.

There is a bit of a Europe versus Asia split in terms of valuations. Japanese equities are the extreme with both Nikkei & TOPIX over 1.5 sigma rich, although both are seeing model confidence roll over. Malaysia (EWM) is also one sigma rich while a host of China-related plays are modestly above macro-warranted fair value.

The majority of green dots are European – notably Austria (EWO), Italy (FTSE MIB) & the broader Stoxx 600.
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