1.       The Trump Discount - EURUSD

The fx market is debating whether capital flows now dominate interest ratedifferentials and therefore justify a structurally lower Dollar.

There several good reasons to think we're only just starting to see a secular shift -a reallocation away from US to European/Asian assets. Does that explain why EURUSD remains elevated despite this week's narrowing in USD-EUR cross-market yieldspreads?

Official capital flow data is low frequency, lagged and noisy. So Qi employs a proxy factor to capture this narrative. A steeper US yield curve reflects the additional risk premium in US assets - the chaos premium for Trump policy uncertainty.

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Negative sensitivity means a flatter EUR yield curve relative to the US is consistentwith higher EURUSD. And sensitivity to this factor is at multi-year extremes.

TheQi framework offers a multi-dimensional approach. Right now taking account interest rate differentials, relative curve shape and multiple other macro factors, macro-warranted fair value is 1.09. The spot market trades 4 big figures north of there, which is a +1.6 std dev Fair Value Gap.

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Even with secular tailwinds, the risk-reward suggests these aren’t great levels to chase EURUSD upside.

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2.       SPY sensitivity to the Dollar & 5s30s hitting extremes

Top Drivers: The S&P500 remains very well explained bymacro on our multi-month look back model, capturing the early Trump 2.0 era. Thetop 2 macro upside drivers? Stronger Dollar & flatter 5s30s i.e. proxies ofthe risk premia associated with the loss of US hegemonic power.

Multi-year extremes – can this persist? The sensitivity to the Dollar and5s30s is at multi-year highs. Tactically, bulls may question if this means concerns on the end of US exceptionalism have swung too far i.e. if China / UShave amicable talks these sensitivities would likely fade.

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Sector implications: Any sign of trade war diffusion would aid Technology & Consumer Discretionary the most.

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There are no major valuation gaps except in Energy: Macrovol has risen alongside the spot price weakness, keeping Qi model values broadly moving with spot. The top 20 stock winners / losers from Dollar weakness / steeper 5s30s (and vice versa) is shown below. Only 3 names are trading > 1 sigma below Qi model value (highlighted in green below).

3.       What's priced? Global government bonds

10y US Treasury yields peaked near 4.60% on April 11th. That represented a 1.2sigma Fair Value Gap on Qi. That FVG has now effectively closed after thisweek's bond rally.

Duration bulls are betting off looking at Canadian govvies where the FVG has againnarrowed but yields still sit modestly high relative to the prevailing macro environment.

Theother standout is Japan - not in valuation terms, there are no FVGs of note. Morethat model confidence is high and JGBs are trading in line with model value,i.e. the market is behaving exactly as it should given macro conditions. Macromatters.

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