27.06.2022
Stagflation vs. Recession
- how to get macro transparency
- how to get macro transparency
How can an asset manager stay on top of the shifting macro narrative? Discerning between stagflation & recession is a tricky call, but a vital one that will dictate performance over H2’22.
Take last week’s bounce in risky assets for instance. The chart below, which can be found on Qi’s portal homepage, shows the 10 macro factors that shifted the most last week.
The good news? Several key measures of financial conditions which had deteriorated significantly in recent months, enjoyed a respite.
The Dollar liquidity squeeze eased up, real rates fell, the stress in European government bond markets reversed course & money markets started to relax expectations for Central Bank rate hikes.
Take last week’s bounce in risky assets for instance. The chart below, which can be found on Qi’s portal homepage, shows the 10 macro factors that shifted the most last week.
The good news? Several key measures of financial conditions which had deteriorated significantly in recent months, enjoyed a respite.
The Dollar liquidity squeeze eased up, real rates fell, the stress in European government bond markets reversed course & money markets started to relax expectations for Central Bank rate hikes.
The bad news? The catalyst for that shift in financial conditions was increased recession risk. Tracking GDP growth fell significantly in the US & Europe. “Doctor” copper, often used as a leading indicator for the global business cycle, fell sharply.
A macro backdrop that supports peak inflation, less monetary tightening & a potential soft landing is risky asset positive. But one that heralds recession is anything but.
Somehow money managers need to find a way to calibrate between these two scenarios. How? Qi model value shows fair value for any security given its sensitivity to the macro factor shifts seen above.
For example, currently the mix between recession risks & easier financial conditions are producing a stalemate for the S&P500. Macro warranted model value is flat-lining at the lows.
But macro conditions have improved noticeably for US High Yield credit HYG.
Both show current market levels close to macro model value, but only credit is enjoying an improvement in underlying macro fundamentals.
A macro backdrop that supports peak inflation, less monetary tightening & a potential soft landing is risky asset positive. But one that heralds recession is anything but.
Somehow money managers need to find a way to calibrate between these two scenarios. How? Qi model value shows fair value for any security given its sensitivity to the macro factor shifts seen above.
For example, currently the mix between recession risks & easier financial conditions are producing a stalemate for the S&P500. Macro warranted model value is flat-lining at the lows.
But macro conditions have improved noticeably for US High Yield credit HYG.
Both show current market levels close to macro model value, but only credit is enjoying an improvement in underlying macro fundamentals.
