Qi MacroVantage - 20th February 2025
Uncover price dislocations, trade opportunities, regime shifts and sensitivity analysis across asset classes
1. Time to fade European equities
European equity indices have screened as rich to aggregate macro conditions for a few weeks now. But now there are two new developments:
• Fair Value Gaps have extended well over 1 sigma rich. SX5E is 1.5 sigma (3.1%)above fair value
• Qi model confidence is rolling over
The fall in model confidence suggests macro cannot explain the last part of this rally. That could refer to excessive positioning/sentiment, or perhaps greater political influenceahead of Germany's election on Sunday.Either way, at least from a tactical macro perspective, the risk-reward around the strongstart to 2025 for European equities has shifted lower
2. Time to fade 10y BUND yields
The flip side of the recentrally in European stocks is a back-up in Bund yields; nominalyields have risen over 10bp this week, while real yields are at 2025 highs.The assault is coming from both monetary (hawkish ECB speak dialling back rate cutexpectations) and fiscal (greater bond issuance to meet future defence commitments)policy.
That combination has taken spot yields 1.1 sigma (16.5bp) above Qi model value. Modelconfidence is low but there are two additional warning flags.
• Qi's tactical Short Term model has exactly the same Fair Value Gap - yields sit 1.1sigma & 14bp above aggregate macro conditions.
• The correlation between the Long Term model's FVG and spot 10y yields is high.The suggestion being the gap closes by yields catching up/down to prevailing macro conditions.
3. KWEB also vulnerable
The European equity example above suggests there's potential for the early 2025momentum trade that favoured the RoW, to flip to a mean reversion strategy back towards US exceptionalism. The same holds for Chinese tech that's enjoyed a great runsince DeepSeek.
On Qi, KraneShares China Internet ETF KWEB now sits 1.6 sigma (12.6%) rich relative to theNASDAQ ETF QQQ.There's a health warning - Qi model confidence is low (17%) but the counter to that is there's very strong (85%) correlation between the spot RV pair & Qi's FVG. A sign thatovershoots have tended to correct via spot prices mean reverting back to model fair value.
