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Zone Defence
Zone defence
Friday’s CPI report was unambiguously bad & prompted a significant re-pricing of Fed rate hikes.

It is tempting to view US equity market price action exclusively from an inflation perspective. While it is the dominant topic in financial markets today, inflation is not the only macro factor at play.

S&P500 model confidence is 80% & trending higher. Macro matters! Over the last month Qi model value has fallen 6.0%.

The single biggest driver of that downgrade was European peripheral spreads. It alone accounts for almost half of that deterioration in macro warranted fair value. And, as per the second chart, sensitivity is rising strongly.
Spx AttributionSpx Euperiph
Higher real rates are the next biggest contributor & the only other factor with a 1% plus impact on model value. This bear move is about tighter financial conditions, both at home & abroad.

A key premise of Qi is that to better predict future price levels, you need a robust understanding of what is driving price action today. For US equity managers that means focusing exclusively on inflation, as important as that is, risks taking too narrow a view.

In sporting terms, it’s the same as man-to-man marking leaving you vulnerable to not seeing the plays being run behind your back. Qi offers you the chance to play zone defence with one click of a button.
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