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Insights
Insights showcases topical observations from Qi. Pure signals highlighting where assets are rich or cheap versus macro. Or roadmaps to help provide the most efficient way to express any trade. Flags, in real time, highlighting changes in factor leadership or regime shifts.

See below for articles and analysis.

Juskteez Vu Tirxot28Znc Unsplash
29.11.2021
Omicron - leaders & laggards
Sharp moves in holiday thin markets inevitably leads to anomalies. Where are the opportunities in the aftermath of the Omicron sell off?
Raychel Sanner 0Pswkddfxii Unsplash
25.11.2021
Beware High Yield
The iShares ETF tracking US High Yield is once again being driven by macro factors after 3 months out of regime.
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Sunil Ray Aqprqg Ji3C Unsplash
24.11.2021
Equities lead bonds?
US Financials hit one sigma cheap versus US Real Estate last week. That’s one of the biggest Fair Value Gaps of the last 12months.
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Juskteez Vu Tirxot28Znc Unsplash
23.11.2021
All aboard the ARK?
Strong outflows, high short interest, rising bond yields which in theory hurt technology & biotech. There is a growing list of headwinds for Cathie Wood’s ARK funds.
22.11.2021
The Euro
Renewed lockdowns, disappointing economic data & a dovish Central Bank are typically cited when discussing the poor performance of the European single currency. What’s the quantitative macro picture?
19.11.2021
Black Friday
Black Friday is a week today. It had already become more than a one-day event but that is especially true this year with supply constraints prompting a flood of early shopping.
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Orion Nebula 11107 1920
18.11.2021
China risks
- a stress test for US equities
US Treasury Secretary Janet Yellen told CBS News an economic slowdown in China would have “global consequences”. Hardly new news, but a major tail risk facing all money managers.
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Max Larochelle Uu Jw5Sunyi Unsplash
17.11.2021
A word of warning for Dollar bulls
Momentum is with US Dollar bulls but, for some crosses, it is important to keep a close eye on inflation expectations. Higher inflation can hurt currencies, & this is especially noticeable for the Dollar versus the Euro & the Pound.
Hs 2009 25 Hubble
16.11.2021
Fade European Covid fears
Mainstream media is full of stories about new restrictions in Europe as it once again becomes the epicentre of Covid cases. Equity markets have responded by selling the EU Travel & Leisure sector.

On Qi, this sell-off has taken the sector into potentially interesting territory.
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Aaron Burden Nxt5Prob 7U Unsplash
15.11.2021
USDJPY
Macro fundamentals point to higher USDJPY.
Shivendu Shukla 3Yotpuyr9Zy Unsplash
12.11.2021
Chinese Real Estate
Chinese press, including state media, are fuelling speculation that Beijing may ease property firms access to debt markets & the liquidity they provide.
Jeremy Thomas E0Ahdsenmdg Unsplash
11.11.2021
The view from 10,000ft
A step back to look at the big picture. What’s the view across asset classes from a quantitative perspective?
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10.11.2021
Upgrades
The home page of the Quant Insight web portal has been upgraded. New features include:

* Qi Vol Indicator
* Tactical Asset Allocation
* Macro factor shifts
See more
10.11.2021
Inflation hedges
US CPI day. Mainstream media / research will debate whether today’s release conforms to a transitory or sticky inflation outlook. Most will already have an entrenched view on that &, as such, will argue the Fed are behind the curve or on the cusp of crashing the economy.
Cameron Venti Xkcaeep4Ui4 Unsplash
09.11.2021
China contagion?
It is no longer an idiosyncratic story about Evergrande. Other Chinese property firms such as Country Garden, Vanke & Sino Ocean are now feeling the pressure too.
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Reid Zura Rijrunzf8Nc Unsplash
08.11.2021
Travel opens up
Transatlantic flights resume today marking a major step in the return to long haul travel. How does the global airlines sector look from a macro perspective?
04.11.2021
Decision day at the BoE
A look at Sterling fx as we head into today’s finely balanced BoE rate decision.
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Aaron Burden Nxt5Prob 7U Unsplash
02.11.2021
Fade the yield curve?
Yield curves have flattened aggressively of late. Not just in terms of the size of the move, but in the scope – it has been a global phenomenon. That has created a lot of pain for investors who held curve steepening positions predicated on Central Banks that, until last month, were describing inflation pressures as transitory.
Adam Birkett 77Hmm5Tg N4 Unsplash
02.11.2021
Go Green
Several of Qi’s ESG models focused on the environment have moved into rich territory. The spike in traditional energy costs, plus hopes the Biden infrastructure deal boosts investment in clean energy have been useful tailwinds.
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Daoudi Aissa Pe1Ol9Olc4O Unsplash
01.11.2021
(Don't Fear) the Taper
The Fed meet this week but Quantitative Tightening is fully priced & seemingly poses no threat; the focus has moved on to when Central Banks hike interest rates. That seems to be the main market narrative at least.

On Qi, two risky assets stand out with a potentially dangerous mix – rich on macro valuations & highly reliant on ongoing Quantitative Easing.
Hs 2009 25 Hubble
29.10.2021
Qi Credit Impulse
Qi’s credit impulse suggests global markets are experiencing a sharp tightening in financial conditions. That is true for all, but especially in the US, Europe & UK.


Measures of credit impulse & financial conditions are not new. Several versions exist, all with subtle variations in the indicators they include & the methodology employed to calculate them.
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Lucas Sankey Gdq Az6Cspo Unsplas
28.10.2021
Bullish but scared
Bullish US equities but nervous about big tech?
Guillaume Perigois 0Nrkvdda2Fw Unsplash
28.10.2021
ECB day
It’s a particularly important ECB meeting. Just 3 months ago they announced a dovish policy pivot. Yet the new policy guidance hasn’t spared Europe from a sharp re-pricing in rate expectations - money markets are now discounting earlier ECB rate hikes.
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Ferenc Horvath Skcfibu91Aa Unsplash
27.10.2021
One for the contrarians
The regulatory onslaught facing Chinese tech has fallen off the front pages. It remains a highly challenging environment given Beijing’s new policy priorities. However, there are tentative signs that the 2021 downtrend is potentially turning. At least from a macro perspective.
Joshua Sortino Lqkhndzsf 8 Unsplash
26.10.2021
China exposure
There is an increasing amount of commentary focusing on the downside risks to Chinese economic growth. Bottom up analysis will focus on those companies who derive a significant portion of their revenue from sales in China.
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25.10.2021
Look out below!
European growth fading fast
The outlook for European growth is declining rapidly. Qi uses the shape of the yield curve to measure market expectations for forward growth. In Europe, the sharp decline has taken growth expectations 2.5 standard deviations below long term trend. Which European assets are most vulnerable to an economic downswing?
Felix Mittermeier L4 16Dmz 1C Unsplash
21.10.2021
Time to re-visit
Value vs. Growth?
The reflation trade after the Democrat’s win in Georgia seems a distant memory. Value has reverted to type & once again been underperforming. Yet, from a macro perspective, there are emerging signs that Growth could be vulnerable.
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Raychel Sanner 0Pswkddfxii Unsplash
21.10.2021
Bad inflation
Global equity markets are showing signs of a significant regime shift when it comes to the impact of inflation. Several indices are now flirting with a pattern of negative sensitivity, i.e. rising inflation expectations are bad for equity markets.

Qi captures the independent sensitivity of any asset to inflation expectations &, as per the chart below, most of the time global equity indices have had a positive relationship. Ordinarily, a healthy economy & reflation means healthy company earnings.
Javier Allegue Barros 0Nop5Ihvaz8 Unsplash
20.10.2021
Why are US equities rallying?
Money markets are pricing in additional Fed rate hikes; the bond market fears that could amount to a policy error that derails growth. And yet US equities continue to rally. How can we square this circle?
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David Moum Nbqlwhovu6K Unsplash
18.10.2021
Stagflation - a European problem
The traditional “misery index” uses the level of unemployment plus the rate of inflation to capture the degree of economic distress experienced by the population.
Manuel Meurisse 5C8Fczgvar0 Unsplash
14.10.2021
Brazil, the forgotten inflation hedge
EWZ, the iShares ETF tracking MSCI Brazil, is back in regime after almost 3 months of being driven by non-macro factors.
Pexels Sam Willis 3934512
13.10.2021
Transitory a 'dirty word'
Governor Bostic has revealed he & his staff at the Atlanta Fed have a swear jar labelled “transitory”, & they have to forfeit $1 each time they use the “t” word. A neat story that captures how far the debate has swung away from the idea inflation is temporary.
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Casey Horner Rmowqdcqn2E Unsplash
12.10.2021
Black Friday starts now
Supply chain disruptions are re-defining the traditional holiday shopping season. Last week Amazon declared “the holidays have officially begun” as it announced discounts earlier than normal. It, & other retailers, are looking to appeal to those consumers eager to move ahead of potential shortages.
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12.10.2021
Japanification
In finance, the phrase Japanification refers to a combination of low growth, low inflation & low interest rates as an economy battles with a deflationary trap.
Daoudi Aissa Pe1Ol9Olc4O Unsplash
11.10.2021
Convergence
Friday’s US Payrolls report didn’t materially move US tracking GDP growth but it did push inflation expectations higher. For a few months US inflation expectations were noticeably lagging those in Europe, but the two are now converging once again.
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Evgeni Tcherkasski Bfbhwj4Qafo Unsplash
07.10.2021
In the nick of time
Equities were relieved to see Republicans & Democrats move towards a compromise on the US debt ceiling, even if it has merely pushed the cliff edge back to December.

Default fears were already impacting US Treasury bills & signs of money market stress were starting to hit cross-currency basis swaps which Qi uses as a proxy for US Dollar liquidity.
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06.10.2021
A defensive play
for long only
For long only managers worried about a more meaningful correction in equity markets, it is worth noting that Quality as a style factor looks cheap versus macro.
Jake Weirick 09Bqxnvo7Eu Unsplash
05.10.2021
Want to buy the dip?
The overnight sell-off in Asian equity markets has seen the Nikkei 225 move 1.3 sigma (4.2%) below Qi’s macro-warranted fair value.
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Orion Nebula 11107 1920
05.10.2021
The European re-opening trade
The European Travel & Leisure (SXTP) sector looks expensive versus nearly every one its peers. For bulls, it may no longer be the best expression of the European re-opening trade; for bears, the one most vulnerable in any equity correction.
Adam Birkett 77Hmm5Tg N4 Unsplash
04.10.2021
Contagion
Not Evergrande & Chinese real estate, but US retail.
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Nasa Rtzw4F02Zy8 Unsplash
01.10.2021
Signs of a turn?
Signs of a turn in Qi’s model confidence measure for global equity markets.
Hs 2009 25 Hubble
30.09.2021
FX update
Lots of noise surrounds the Dollar’s breakout to the upside. From Qi’s perspective, the Dollar remains well explained by macro & is largely behaving as it should given the fundamental environment. Aussie & Sterling look more interesting on our metrics.
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29.09.2021
Fade the energy crunch
Petrol shortages in the UK, record low gas inventories fuelling high energy prices across continental Europe, large sections of Chinese industry crippled by electricity shortages. Negative headlines about a global energy crunch dominate mass media.
Casey Horner Rmowqdcqn2E Unsplash
28.09.2021
IWM, QQQ & SPY
The sharp move up in bond yields has re-focused attention on value versus growth equity styles.
Nasa Hi5Dx2Obas Unsplash
27.09.2021
Bellwethers for the bears
While events in China stole the headlines last week, from a domestic perspective the steady downgrade in Q3 earnings estimates has been a headwind for US equity performance.

Recent results from FedEx, Nike & Adobe are cited as examples of the supply constraints facing corporate America; or, the shift in the equity market's reaction function with poor price action following good news. Bears sniff a different tone heading into this earnings season. So what's the macro perspective?
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Ferenc Horvath Skcfibu91Aa Unsplash
27.09.2021
RETINA™ - Momentum & Miners
A number of new RETINA™ signals make worrying reading for commodity related equites. All are momentum rather than valuation signals.

They could be idiosyncratic stories but they cover global copper miners, Chinese energy, and US metals & mining stocks. For those who want to join the dots, it does not send a positive signal for the industrial cycle.
Omega Nebula 11053 1920
24.09.2021
Round trip
The Evergrande fall-out at the start of the week impacted global financial markets via three channels. Wider sovereign Chinese CDS, higher risk aversion & wider credit spreads.

Those three prompted a sharp re-pricing across asset classes. Two of the three have now completed a round trip. The charts below show all three in z-score terms.

After a sharp 2 standard deviation jump, VIX is once again running below long term trend. Similarly, after a brief spike wider, credit spreads have reverted below trend.
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23.09.2021
The Fed revert to type
A little over a year since Jackson Hole first introduced it, last night’s FOMC arguably signalled the end of Average Inflation Targeting as a policy. That at least seems to be the snap response from bond markets as the yield curve flattened & inflation break-evens narrowed. A combination that speaks to a more pre-emptive Fed; or, for the pessimists, a policy mistake.
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Adam Birkett 77Hmm5Tg N4 Unsplash
22.09.2021
Your roadmap for slower
Chinese growth
While the jury is still out on whether Evergrande is an idiosyncratic or systemic risk to financial markets, few dispute that recent events will dent Chinese economic growth prospects.

The chart below shows the independent relationship between various global equity benchmarks & Chinese GDP growth. Red versus green dots speaks to macro valuation – rich to macro & cheap to model respectively.
2021 09 22 11 51 05
22.09.2021
Look up™
Qi expands with $10m funding to empower investors with world-first trading analytics

Today we announce a major scale up after four years of research and development and over $10m in funding from three investment rounds.

The company, which has offices in London, New York and Limassol, has clients with total Assets Under Management (AUM) of over $2.5 trillion incorporating Qi’s analytics in their investment process. It is led by experienced macro hedge fund portfolio managers and leading academics in machine learning and signal extraction from Cambridge, Harvard and Princeton, in addition to best-in-class data engineers.

Quant Insight’s AI-based financial market brain (RETINA) scans millions of data points daily to provide a succinct overview on how macro forces are impacting all asset classes, from FX, indices and single stocks, to commodities, bond futures and cryptocurrency. RETINA reduces millions of data points into two to five essential daily insights and is already being used by some of the world’s best known investment banks, hedge funds and asset managers, including Alan Howard of Brevan Howard.

Quant insight was co-founded by experienced macro investor and portfolio manager, Mahmood Noorani, who has previously worked at Morgan Stanley, UBS, BlueCrest Capital, Citi Capital Advisors Global Macro Fund, and Credit Suisse. Other key partners in the business include Professor Michael Hobson, Professor of Astrophysics at the University of Cambridge, who authored the Qi White Paper on methodology, which emphatically validated the Qi algorithm, and Professor Ryan Prescott-Adams, an academic leader on Machine Learning and former lecturer at Harvard, who sits on Qi’s Academic Advisory board. Qi’s investors also include Alan Howard and JP Stein, with additional investors including financial market professionals, the ex-CEO of a major European investment bank, and the Chairman of a top three US investment bank.

Currently, with the rise of the retail trader, Quant Insight is developing an API, which allows them to partner with online brokers and messaging platforms, granting retail investors access to some of the cutting-edge analytical tools and trading signals that are being used by institutional investors.

Mahmood Noorani, Co-Founder and CEO for Quant Insight, comments:

“For too long the investment world has relied on a mixture of subjective research, educated guesses and an abundance of data that has made accurate decision-making impossible.

“To tackle this endemic problem, we have combined advanced mathematics, data science, machine-learning, and decades of financial expertise to create a fully-automated financial market brain, RETINA, that scans markets globally, intraday, ingesting millions of data points daily on high frequency macro information, to identify high probability opportunities and deliver signals in real time.

“It’s not a coincidence that the world’s best known hedge funds and asset managers use Qi. Our growing client base of institutional investors has been universally positive, and we have a number of exciting partnerships, product updates and major announcements to unveil over the coming months, particularly as we tackle the retail investment market with increasing efficiency.”
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Nasa Scbkw9Akgca Unsplash
21.09.2021
China
Yesterday saw some significant moves in several key macro factors. The charts below detail the sharp escalation in China stress (at the national, rather than real estate sector specific level) & the impact that had on broader risk appetite & the credit market.
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Hs 2009 25 Hubble
20.09.2021
A warning sign
Global equity markets are no longer being driven by macro fundamentals. Other variables – such as regulation, sentiment, positioning – have become more important.
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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:
Ferenc Horvath Skcfibu91Aa Unsplash
16.09.2021
RETINA™ cautious on Kiwi
RETINA™ has inflection signals on three Kiwi fx crosses.

All three show the Kiwi as rich to its macro fair value; the chart below shows Qi Fair Value Gap in standard deviation terms. All are close to 1y highs.
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 ?
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Jeremy Thomas E0Ahdsenmdg Unsplash
13.09.2021
RETINA™ - European
Financials vs. Retail
European Financials are 1.6 sigma (6.5%) cheap versus Retail. Aside from being close to a 1y low in Fair Value Gap terms there is also an inflection signal. Having diverged over the first part of September, both spot price & Qi model value have turned higher.
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09.09.2021
New macro regimes in FX
The chart shows the 10 biggest changes in model confidence across all Qi’s currency pairs. Nine out of ten show rises in macro’s explanatory power; six of those have crossed the 65% threshold to move into new regimes.
Nasa Rtzw4F02Zy8 Unsplash
08.09.2021
A Macro Roadmap
Qi founder & CEO Mahmood Noorani takes a step back to look at the bigger picture. And how Qi can help navigate the major macro risks between now and year-end.
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Evgeni Tcherkasski Bfbhwj4Qafo Unsplash
07.09.2021
The equity view on interest rates
XLF vs. IYR
Qi’s model of the relative value between US Financials (XLF) & US Real Estate (IYR) is now posting a substantial Fair Value Gap. At -1.5 sigma (-6.6%), the FVG is close to one year lows.

The relative performance of financials versus real estate is often seen as a way for equity investors to trade US interest rates. REITs tend to outperform banks when interest rates are falling. The standard narrative is that when rates are low the former offer a yield play while the latter find Net Interest Margins are squeezed.
Jake Weirick 09Bqxnvo7Eu Unsplash
06.09.2021
Suga high
Japanese equities have added to last week’s rally & are now at highs not seen since 1990. Hopes that Suga’s successor will deliver additional stimulus & a more efficient response to the pandemic are widely cited as the drivers of the move.
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Nasa Hi5Dx2Obas Unsplash
03.09.2021
RETINA™ - GBPNOK & BTP futures
Two new inflection signals from RETINA™ in European rates & FX.
01.09.2021
Man vs. Machine
Human stock picking expertise or artificial intelligence? Which offers investors the better returns?

One way to monitor or trade the man versus machine dynamic is via AIEQ – an ETF that invests in US stocks chosen by EquBot’s proprietary model that runs on IBM’s Watson Platform.
Pexels Miriam Espacio 110854
01.09.2021
Peak Delta worries?
Principal Component Analysis is used in medical science but that’s as close as Qi comes to diagnosing coronavirus or any other illness. But, given equity market highs contrast so starkly with fears about the the Delta variant, it is worth noting Qi’s watchlist of Lockdown Favourites – single stocks often cited as among the chief beneficiaries of remote working.
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Nasa Scbkw9Akgca Unsplash
31.08.2021
Cyber security - a new uptrend
RETINA™ momentum metrics are signalling a potential new uptrend for HACK, the ETF that tracks cybersecurity firms.


Understandably events in Afghanistan dominate the front pages. But as we head into the Labor Day weekend it is worth remembering that as recently as the last US bank holiday (July 4th), it was cyber rather than physical security that was making the news.

REvil’s attack on US software company Kaseya was noticeable not only for the $70mm ransom demand, but also for the escalation in scale & frequency of cyber attacks in 2021.
Pexels Sam Willis 393451
31.08.2021
A message from the
US yield curve
The US yield curve (5s30s) steepened last week for the first time in over a month. By delivering a ‘dovish taper’ - reduced asset purchases are coming, rate hikes are not - Chair Powell’s Jackson Hole speech is credited with the move.

The summer flattening of the yield curve was widely seen as evidence of the slowdown in global growth. Fed tightening into that cyclical downturn added fuel to those fears. Powell did a lot to assuage those concerns on Friday.
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26.08.2021
Taper Tantrum?
Bond yields have crept higher this week as we head into Chair Powell’s Jackson Hole speech. Does that indicate the return of the bond vigilantes & fears of a taper tantrum?

The chart below shows Qi’s measure of Central Bank Quantitiave Tightening expectations in z-score terms over the course of 2021.
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2021 08 26 11 53 34 Copy
26.08.2021
New 'Common Prosperity' policy: 
Which Sectors look to gain or lose?
China is now pushing its new policy initiative of “common prosperity” that is thus far as long on the progressive rhetoric of redistribution of wealth and overcoming income inequality as it is short on detail. But because of the influence of macro drivers on asset prices as tracked by Quant Insight (Qi), and China’s leading role as a driver of macro, some sectors and asset classes such as European luxury goods firms and commodities are already feeling a little less prosperous.
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Omega Nebula 11053 1920
26.08.2021
Hedging German election risk
Germany goes the polls next month. Does the macro picture offer any cheap hedges for those worried about increased political risk premium?
Casey Horner Rmowqdcqn2E Unsplash
25.08.2021
European Banks - one to watch
After a fantastic first half of the year, European Banks have stalled. But while SX7P has edged lower, Qi’s macro-warranted model value appears to be trending higher. Both for EU Banks outright, & relative to the broader market.
24.08.2021
Factor Watch - Commodities
Both crude oil & copper have now reverted to long term trend. The correction in iron ore continues & has taken it below trend.

Across multiple asset classes, energy is - by some margin - a more important driver than metals on current relationships.
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Jeremy Thomas E0Ahdsenmdg Unsplash
24.08.2021
Trading China's "common prosperity"
Dead cat bounce? The recent recovery in risk appetite has enabled European luxury brands to rally after a brutal 2 week sell-off.

But Beijing’s new “common prosperity” policy still implies less Chinese demand for European high margin luxury goods.
Jake Weirick 09Bqxnvo7Eu Unsplash
23.08.2021
Top Down vs.
Bottom Up
In the last 10 days, weak economic data – most notably Consumer Confidence & Retail Sales – has prompted US tracking GDP growth to fall from 6% to 3.6% in annualised terms.

Yet at the same time we have seen a raft of upgrades from retailers.

Walmart raised their outlook for 2021 for the second time in 3 months; Macy’s did likewise; Home Depot recorded their highest quarterly revenues ever. How do we square the two seemingly opposing stories?
23.08.2021
The lucky country no more?
The chart shows the 10 biggest Fair Value Gaps across all Qi’s FX models. It has a distinct ANZAC bias.

Aussie features 4 times – each time it is cheap, & the FVG is at or close to a 1y extreme. The Kiwi features 3 times & each time screens as cheap & at 1y FVG lows.
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Nasa Rtzw4F02Zy8 Unsplash
13.08.2021
US vs. Rest of the World
Two charts - S&P500 versus Developed equities, S&P500 vs Emerging Market equities.
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Omega Nebula 11053 1920
12.08.2021
Peak Infrastructure
Looking at the sector level may be too crude for stock pickers who seek to identify the individual winners & losers from the US Infrastructure deal.

Nevertheless the sector view can provide some signals on how the broader US equity market is pricing the successful passage of President Biden’s bill.
Pexels Sam Willis 3934512
11.08.2021
US Inflation - then & now
Peak reflation was March 31st. At least as measured by 10y US Treasury yields which hit a 2021 high at 1.74% on that date. With the next batch of US CPI data due today, how sensitive are the different equity sectors to US inflation expectations now versus the end of Q1?

US equity sector sensitivity to inflation expectations –
Aug 10th
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Anna Anikina Ath9Gmakfpe Unsplash
10.08.2021
The commodity super cycle,
re-visited
Early in 2021, commodities led the global reflation charge. The direction of travel was clear; the only dilemma facing investors was how to best capture the bull move. Now, with crude, gold & silver all experiencing sharp pullbacks, what is the story from an objective macro perspective?
Screen Shot 2021 08 02 At 154109
09.08.2021
Qi adds Trend & Momentum metrics
to existing Macro Framework
Qi’s macro framework has a new feature. In addition to the macro profile of an asset, Qi users can now look at the trend & momentum characteristics of the same security.
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Orion Nebula 11107 1920
09.08.2021
XLF on the move
Friday’s strong jobs report prompted a sharp increase in US bond yields. That in turn enabled Financials to be the star performer of the day, rising 2% & outperforming all other sectors. Rising interest rates are typically seen as a tailwind for Financials.
Pexels Miriam Espacio 110854
05.08.2021
The Upside Down
Not Netflix’s Stranger Things, but the unorthodox policy beliefs of Turkish President Erdogan who argues higher interest rates result in higher inflation. With the Central Bank of Turkey meeting next week, Erdogan is ramping up pressure for a rate cut.
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Adam Birkett 77Hmm5Tg N4 Unsplash
04.08.2021
Energy - a protected short
RETINA™ is flashing a bearish signal on US energy versus European energy using the sector ETFs XLE & EXH1.
Jake Weirick 09Bqxnvo7Eu Unsplash
03.08.2021
Aussie FX
A major narrative in markets currently is the threat to global growth from the Delta variant. In that context, the RBA’s decision to look through Australia’s economic lockdowns is notable. Their assessment overnight was to reassert their confidence in the recovery & stick with plans to gradually reduce the pace of QE.
Casey Horner Rmowqdcqn2E Unsplash
02.08.2021
Factor Watch - Real Rates
Equity investors typically have less visibility on shifts in macro factors. But even macro players may lose a degree of perspective. Qi looks at macro factors in z-score terms, capturing their moves relative to long term trend.
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Nasa Hi5Dx2Obas Unsplash
29.07.2021
Trading Central Bank
Policy Divergence II
Yesterday we demonstrated how the Qi framework can identify which currency pairs are being driven by interest rate differentials; & hence show which FX crosses best capture the different speed of Central Bank policy normalisation. The next step is to add a valuation overlay.
Nasa Hi5Dx2Obas Unsplash
28.07.2021
Trading Central Bank
Policy Divergence
It’s Fed day. Whatever the outcome, what is evident is the growing divergence opening up between global Central Banks. More specifically, how quickly each exits the extraordinary monetary policy easing seen during the Covid pandemic. Currently, the RBNZ / BoC & ECB appear to be the hawkish & dovish bookends respectively.
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Hs 2009 25 Hubble
27.07.2021
Navigating China Stress
Events in China are critical. The implications are widespread & potentially enormous for financial markets. How can investors track across asset classes, across geographies to monitor where the fall-out is leading or lagging?
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Evgeni Tcherkasski Bfbhwj4Qafo Unsplash
27.07.2021
RETINA™ & US Sectors
Whether strong earnings, retail buying of the dip or a simple TINA mentality, US equities are back near the highs. Those looking beyond the moves in big tech, however, should note some cautionary signs under the surface.
Jake Weirick 09Bqxnvo7Eu Unsplash
26.07.2021
US Earnings
Earnings season has been an unambiguous positive for US equities thus far, & gone a long way to propel indices higher despite other headwinds. This week is busy with a number of bellwethers due to report.
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Qieartheye
16.07.2021
RETINA™ goes interactive
RETINA™ scans your instrument universe intraday and notifies you when valuation and/or trend measures align to generate high probability trade ideas. Used by the world’s leading asset managers and hedge funds globally.
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Juskteez Vu Tirxot28Znc Unsplas
16.07.2021
Momentum turns defensive
RETINA™ has two bullish signals on US Consumer Staples. Both are momentum signals, & both advocate defensive Staples versus cyclical sectors.
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15.07.2021
Storm clouds gathering
The S&P500 fell out of macro regime on June 29th. That’s the first time the US equity benchmark has not been explained by macro factors in three-&-half years. Low macro model confidence is often associated with increased volatility.
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Orion Nebula 11107 1920
13.07.2021
US equities & inflation - a regime shift?
In our “Inflation – Friend or Foe?” observation we simply added up the number of S&P500 single stocks with a positive relationship with US inflation expectations (‘inflation tailwind’), versus the number with a negative relationship (‘inflation headwind’). Updating that chart today reveals an interesting shift.
12.07.2021
US earnings season
- macro still matters
US earnings season gets under way this week. A period when bottom-up analysis of company fundamentals typically dominates. This does not, however, mean investors can ignore macro.
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Evgeni Tcherkasski Bfbhwj4Qafo Unsplash
09.07.2021
Fading FX safe havens
The Dollar rally is starting to look somewhat extended on Qi’s macro valuations. However, the majority of USD crosses have fallen out of regime meaning such signals come with a health warning.
Zzz
08.07.2021
Qi & EPFR
EPFR's best-in-class fund flow data is a natural complement for Qi's quantitative framework. Aligning their data on client sentiment/positioning with Qi's macro drivers & macro valuations, makes for a powerful combination.

In this instance we discuss the technology / growth versus cyclical / value rotation in US equities.
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08.07.2021
Falling Bond Yields & Financials
Conventional wisdom holds that falling bond yields are especially painful for financials.
07.07.2021
Growth Scare
Poor economic data at the start of the new quarter has prompted widespread angst that the reflation trade of early 2021 is giving way to a growth scare. However, some assets have been pointing to lower growth for a while.
Monday1
06.07.2021
Italy vs Spain
They may be outperforming their European peers in the football, but Italy & Spain are lagging in terms of equity market performance.

Both the FTSE MIB & IBEX 35 are around one sigma cheap versus pan European indices.
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Pexels Sam Willis 3934512
02.07.2021
Hedging China
A key macro theme for H2 2021 is the normalisation of the Chinese policy stance & the implications for slower growth. Falling credit impulse data, for example, is getting a lot of attention.
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Qeye4
01.07.2021
TAA - Emerging Market Bonds
A new 3-bar conviction signal for tactical asset allocators at the start of a new quarter.
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Juskteez Vu Tirxot28Znc Unsplash
30.06.2021
Trading OPEC+
How is an equity investor supposed to navigate the OPEC+ meeting? In many respects the answer is largely intuitive - in both the US & Europe, energy itself plus financials display the strongest relationship with crude oil prices.

However, by aligning sensitivity to Brent with macro-warranted valuation, the standout is actually European Travel & Leisure. It’s not as sensitive as US Energy or US Financials, but it is the biggest beneficiary amongst all European sectors if crude resumes its uptrend.

Moreover, it is the cheapest sector in macro valuation terms. Now 0.7 sigma (9.6%) cheap to macro. Meaning some of the bad news is already priced should Friday’s meeting hurt oil; & it presents the best entry level if crude rallies & prompts a broader risk on move.
28.06.2021
Chinese Tech - end of the bear market?
Since the cancellation of the Ant Group IPO last year there has been a steady stream of negative news for Chinese technology companies. The ongoing threat of regulation has weighed heavily on the sector. Have we now reached the point where all the bad news is in the price?

RETINA™ is flagging a bullish momentum signal for Chinese IT – both short & long term metrics point to the formation of a new uptrend.
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Icircle
24.06.2021
Re-pricing liquidity
For several markets, last week’s fall-out from the Fed’s apparent policy pivot, has now itself been fully unwound. In other areas, the impact lingers.

The lasting effect is most noticeable in the first chart which shows Fed rate expectations as measured by the shape of the Euro$ futures strip. The sharp re-pricing after the Fed dot plot was a 3 standard deviation move which has yet to meaningfully mean revert. That shift in the markets’ pricing of the Fed represents a tightening of financial conditions.
Omega Nebula 11053 1920
23.06.2021
NASDAQ at the highs...
… so, for technology bulls, what is lagging?
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Casey Horner Rmowqdcqn2E Unsplash
22.06.2021
Cue Jerome Powell
Screening across all Qi’s government bond, bond futures, interest rates swaps & STIRT models for the 10 biggest Fair Value Gaps (subject to each model being in regime), produces the chart below.
Nasa Rtzw4F02Zy8 Unsplash
21.06.2021
Growth scare - leaders & laggards
Price action increasingly looks like markets are experiencing a sharp mid-cycle growth scare. Which assets are leading & lagging in this move?
Cameron Venti Xkcaeep4Ui4 Unsplash
18.06.2021
Defying gravity?
The more the correction in commodities continues, the more crude oil looks like an outlier. Why is it ignoring the move lower in the rest of the commodity complex; & is it merely lagging & therefore a potential short?
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17.06.2021
What's new: The quarterly Qi update
Get updates on Quant Insight company growth, new solutions, fund manager insights, and media references.
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17.06.2021
Dollar squeeze? AUD not USD
Last night’s Fed surprise has once again raised the prospect of a short squeeze for the US Dollar. What’s the quantitative macro picture for G10 fx?
Dtqi
16.06.2021
Why are 10y US yields down? Two expert views
DataTrek is Wall Street's go-to commentary for differentiated & actionable investment ideas. Their daily note offers a unique blend of market insight & data-driven analysis.

In that respect, DataTrek & Quant Insight offer the same output but arrive there via two distinct processes. Nick & Jessica between them offer 40 years of experience in the investment industry. Quant insight employs a proprietary version of PCA to show the macro profile of any financial asset.

How macro factors explain the variance of stocks, bonds & currencies; valuation gaps (the difference between spot & actual price) to flag potential trade ideas; & regime shifts as the macro environment changes.

Human intelligence & experience remain an invaluable asset but, in the modern & increasingly complex world, adding in a machine driven framework can only add value to the investment process. This is the first Quant insight / DataTrek joint venture, focusing on 10y US Treasury yields. Summary below, full article via the pdf link at the bottom. Further JVs will follow.
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16.06.2021
Need an inflation hedge?
FOMC day. The consensus expects little change with greater focus on August & Jackson Hole for the first signs of a taper. For some, that makes today a non-event. For others, Fed inaction will act as a green light to engage in inflation trades.


10y TIPS break-evens are now 0.5 sigma or 15bp low versus macro-warranted model value. 5y TIPS are 0.7 sigma (29bp) below macro model value. Both are close to 1 year lows in Qi Fair Value Gap terms; attractive entry levels for anyone needing inflation protection.
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Evgeni Tcherkasski Bfbhwj4Qafo Unsplash
15.06.2021
America is back
America is back in geopolitical terms; what about in financial markets?

There is a clear health warning – at 53%, model confidence has fallen below our threshold & out of a macro regime. It is, however, worth noting the extreme Fair Value Gap in Qi’s Euro Stoxx 600 vs. S&P500 relative value model.
Pexels Miriam Espacio 110854
14.06.2021
Brazilian Real
A new regime
Macro model confidence is rising for the Brazilian Real. The chart below shows the 10 biggest changes in macro model confidence across all FX models over the last month. Four of them include the BRL; all four show R-Squared rising. Macro is re-asserting itself as a key driver of the Real.
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14.06.2021
Used cars as a lead indicator
Used car prices are at the heart of the US inflation debate. They accounted for around a third of last week’s upside surprise to CPI.
Anna Anikina Ath9Gmakfpe Unsplash
10.06.2021
XLF & XLE - Macro vs. Momentum
Today’s US CPI could change everything once again, but the current narrative dominating markets is that the Fed are focused on employment, not price pressures. Hence the bond market’s ability to look through “transient” inflation scares.

That begs the question – is there a potential fall out for rate sensitive cyclicals like Financials & Energy? The picture is mixed.
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09.06.2021
Inflation - friend or foe?
US CPI is released tomorrow & arguably the critical question for stock pickers is whether inflation is positive for their holdings - reflecting a healthy economic upswing - or negative as it results in an early Fed tightening, or compresses margins.
Jake Weirick 09Bqxnvo7Eu Unsplash
09.06.2021
Credit
Last Wednesday the Fed announced it will unwind the corporate bonds it bought as part of its emergency policy response to last year’s initial Covid lockdowns. How has the dust settled since that announcement?
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Tuesday
08.06.2021
South Africa
The chart below shows the 10 biggest valuation gaps across all FX pairs modelled by Qi. Three of them involve the South African Rand which is rich to macro on each occasion.
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07.06.2021
The impossibility of a 'bottom-up' equity strategy
Every portfolio is effectively a macro portfolio even when it purports to be bottom up. However you pick the stocks, you usually end up with something that is largely driven by macro factors.
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07.06.2021
RETINA™ - Bullish on Energy
RETINA™ triggered several bullish signals in the energy space on Friday. At the single stock level in US, Europe & Asia. And at the sector level in US relative value space.
Pexels Sam Willis 3934512
28.05.2021
Come fly with me
The airline sector is arguably the purest expression of the re-opening trade. There are hopes next month’s G7 may reach an agreement on travel corridors & vaccination certificates which will help rescue the northern hemisphere’s summer holiday season.
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27.05.2021
Asian Tech
In mid April “A turn in Asian tech?” highlighted that ChiNext was back in regime & cheap to macro. This week Hang Seng Tech & the KWEB China Internet ETF have both crossed back above our threshold & entered new macro regimes.

Company fundamentals remain critical &, in the present environment, regulatory risk is a clear & present danger. However, bottom up investors cannot focus exclusively on the idiosyncratic – macro risks are back as an important driver of Asian tech.
Juskteez Vu Tirxot28Znc Unsplash
26.05.2021
Nothing to see here
Yesterday the Conference Board’s measure of consumer expectations for US inflation hit 6.5%, effectively matching a 10 year high. The contrast with market-based expectations for inflation is notable.

5y5y forward inflation swaps in USD & EUR are widely watched & believed to be favourite indicators monitored by the Fed & ECB. Both had showed inflation expectations as high versus model, but the charts show Qi’s Fair Value Gap retracing back to zero yesterday.

Qi FVG - USD 5y5y Inflation
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25.05.2021
Peak growth?
Qi pulls in Chinese tracking GDP growth from Now-Casting as a core factor for global economic growth. That hit a local high of +17% YoY & has subsequently slipped lower. The chart below shows that in z-score terms. That surge in growth was a 4 standard deviation event but the subsequent retracement has taken back more than 50% of the move.

The markets’ increased attention on China’s credit impulse – the change in new credit as a percentage of GDP growth – speaks to fears China is transitioning from the engine of global growth, to one that has already peaked.
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24.05.2021
The most important chart in
financial markets today
The trend / momentum outlook for Brent from RETINA™. Unsurprisingly, the profile for WTI is identical. The picture is mixed currently but should both lines move into negative territory, thereby flagging a new downtrend in crude oil, the implications are significant.
Nasa Hi5Dx2Obas Unsplash
21.05.2021
The turn?
In US equities, Growth outperformed Value for a third consecutive day yesterday. On Qi, the valuation gap on the Value / Growth ratio (via Vanguard ETFs VTV vs. VUG) has almost halved. At the highs one week ago, Value was 6.7% rich to Growth; that now stands at 3.9% rich relative to the prevailing macro environment. Spot is catching down to macro fundamentals.
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Evgeni Tcherkasski Bfbhwj4Qafo Unsplas
20.05.2021
US Dollar update
The bears are back in control of the US Dollar which is nearing 2021 lows. Qi’s USD G10 Watchlist is notable on three fronts.

Macro remains important – most models are in macro regimes. The majority of crosses are behaving in line with macro fundamentals – only USDCAD shows a valuation gap of more than one sigma. There is a clear but modest skew to the Dollar being cheap to macro.
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Spbf2
18.05.2021
The Spanish bull
The chart shows the 10 biggest Fair Value Gaps across Qi’s models of relative value pairs for global equity indices. Five of the top 10 show IBEX 35 as rich versus its peers.

On current patterns, Spanish equities look like the high beta play for European reflation. They outperform when inflation expectations rise, crude oil increases, the European yield curve steepens, credit spreads tighten & the Euro is soft.

But a fair amount of that good news is now priced making it a potentially attractive vehicle for those thinking the European re-opening trade is due a pause.
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Pexels Sam Willis 3934512
17.05.2021
Taper Tantrum? Watch the ECB
Last week’s US inflation print prompted USD rate vol rate to spike but it remains just below 2021 highs. Meanwhile, European rate vol hit fresh highs last week.

The chart below captures the move in interest rate volatility, which we use to capture market expectations around Quantitative Easing, in z-score terms. The BoC & BoE have already announced plans to taper; & this picture suggests the market fears the ECB is next. The tantrum is not a uniquely US event.
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Casey Horner Rmowqdcqn2E Unsplas
14.05.2021
The exaggerated death of 60:40
If inflation isn’t transitory then the Fed is committing a huge policy error – one that threatens both bond & equity returns. And the traditional 60:40 balanced fund suffers enormously under this scenario.
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13.05.2021
Even Taiwan?
When Taiwan, with an exemplary record of managing Covid & home to best-in-class chip makers, suffers a huge equity rout, it is clear there is something else going on. The answer it seems is deleveraging with margin calls accelerating the equity sell-off.

From a Qi perspective, macro fair value for the TAIEX future is rolling over, but the speed of the down trade in spot has opened up a -0.8 sigma (8.7%) Fair Value Gap.
Jake Weirick 09Bqxnvo7Eu Unsplash
12.05.2021
Inflation
Inflation day in the US. The mood music has started to shift with markets ascribing high commodity prices / inflation as a negative for equities. Have we reached an inflection point where price pressures become a drag on equity markets?

The chart below shows the sensitivity of US equity sectors relative to the broader market to 3 factors – inflation expectations, metal prices (copper, iron ore) & energy prices (crude oil).
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11.05.2021
Chinese Cyclicals
Qi has built models for the Global X MSCI universe of ETFs tracking Chinese equity sectors.

Of those in a macro regime, the Chinese Energy sector stands out. The energy complex is rich to macro model in both the US & Europe, but not to the same degree as CHIE which is 2.2 sigma (10.6%) above macro-warranted fair value.
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Ja
11.05.2021
Qi & Bloomberg
The latest analysis from Bloomberg's John Authers pulls together the reaction to a weak US Payrolls report, & the importance of the current inflation narrative. He cites Qi analysis on global equity markets & their sensitivity to inflation expectations - Qi will flag, in real time, when inflation moves from being a tailwind for risky assets, to a headwind. The original work can be seen here
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Pexels Luck Galindo 544268
10.05.2021
Inflation
Wednesday’s US CPI dominates the week ahead. Despite the undershoot in US Payrolls, market expectations for US inflation rose aggressively on Friday. The common narrative being that a weak labour market ensures the Fed keep monetary policy easy for longer.
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Nasa Rtzw4F02Zy8 Unsplash
07.05.2021
Mixed messages
Falling real yields suggest the bond market is signalling peak economic growth. But the commodity market is shouting loudly that inflation is the number one threat.

For now, equity markets seem to be listening to commodities rather than bonds. Hence the cyclical versus tech split in performance this week.

But, if commodities are the main driver, what’s the empirical snapshot – which equities are most sensitive, what do macro valuations look like?
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07.05.2021
Macroscope:
Nations love inflation until they dont
While equity investors were put on their heels by US Treasury Secretary Yellen's mere utterance of a possible future rate hike, at the moment inflation is the friend and positive macro driver of most global equity markets, according to Quant Insight (Qi) data tracking the influence of macro drivers on asset prices. Yellen later backtracked but her comment still sent shockwaves through global financial markets, especially after recent PMI data pointing to bottlenecks in supply chains and upward pressure on inflation.

Qi data indicate that some global equity markets benefit more from inflation than others with smaller markets in Europe such as Austria, Greece, Norway, Spain and Italy getting the biggest tailwind from rising inflation expectations. On broader macro valuation terms there is a distinct East-West divide as US and European equity markets look consistently expensive while markets cheap to macro are generally in Asia, with Japan (both the Nikkei and TOPIX indices), Indonesia, Korea, India and Emerging Markets both attractively valued and benefitting from inflation.
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Hs 2009 25 Hubble
06.05.2021
BoE Quantitative Easing
& the Pound
Today’s Bank of England meeting will be closely watched for any signs of a taper in their asset purchase programme. The Pound’s sensitivity to BoE QE has crept higher of late.
Juskteez Vu Tirxot28Znc Unsplash
05.05.2021
Global equity indices & inflation
The recent round of global PMI data has sharpened fears about supply bottlenecks & upward pressure on inflation.
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05.05.2021
Nikkei 225 vs. S&P500
The Fair Value Gap on Qi’s Nikkei 225 vs. S&P500 model hit -1.1 sigma (-4.8%) at the end of April. Yesterday’s fall in US equities has enabled the Nikkei to start clawing back some of its recent underperformance & the FVG now sits at -0.8 sigma (-3.6%).

Missing the absolute low in valuation has one potential benefit though – the latest price action looks to have established a trend turn & we now have a momentum signal.
Pexels Sam Willis 3934512
04.05.2021
Tactical opportunity in US Tech
Over the last 10 days the US technology sector has underperformed the broader market by around 2.5%. Yet macro fair value for XLK / SPY ratio has actually increased slightly over the same period. That has opened up a Fair Value Gap of 1.7 sigma (2.8%) & triggered a Divergence signal.
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30.04.2021
US vs. Europe
European equities are near recent lows relative to the US. On Qi, the Euro Stoxx 600 vs S&P500 model is 0.7 sigma (1.2%) below macro fair value, towards the bottom of recent ranges.
30.04.2021
European Autos
Qi’s Tactical Asset Allocation work flagged that the uptrend in the European Auto sector was exhausted & rolling over. The momentum picture remains weak – RETINA™ shows a new ST downtrend while the LT uptrend is sharply decelerating. However, from a macro valuation perspective it is starting to screen as cheap relative to several peers.
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Picture1
29.04.2021
Canada: the multi-asset view
No excitement from the Fed overnight but it’s now one week since the Bank of Canada became the first G7 central bank to signal an end to extraordinary monetary policy accommodation. How has the dust settled?
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28.04.2021
Qi & Bloomberg
Bloomberg's article "Bitcoin at Inflection Point Amid Recent Selloff, Technicals Show" cites Qi's analysis of the crypto complex.
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Anna Anikina Ath9Gmakfpe Unsplash
28.04.2021
Food Inflation
Commodity prices continue to surge higher. What is striking in the table below is:
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27.04.2021
European Re-Opening Trade
For proponents of the re-opening trade, Europe offers a classic value play. And Financials are often the epicentre of the value style, especially in Europe. On Qi, European Financials are now 1.3 sigma (4.3%) cheap versus Technology.
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Jeremy Thomas E0Ahdsenmdg Unsplash
26.04.2021
Amber light for risk appetite
VIX remains sub 20 but the Qi Vol Indicator continues to tick higher. When macro’s explanatory power starts to fall across global equity, bond & FX markets, it can act as a warning that markets are due a bout of volatility.
Hs 2009 25 Hubble
22.04.2021
Pricing Power
Any second phase of the re-opening trade could be more discerning than a simple growth versus value dynamic. Divergence between winners & losers could take a different shape. Pricing power is one variable that could be key.
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21.04.2021
Go Green
It has been announced that Chinese President Xi Jinping will attend the US Climate Summit that starts tomorrow, boosting hopes the two superpowers can cooperate on this issue while still disagreeing on many others.
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Casey Horner Rmowqdcqn2E Unsplash
21.04.2021
Re-visiting Reflation:
XLI vs. XLU
This latest pullback in US equities has seen US Industrials move to 0.8 sigma (5.8% cheap) versus Utilities. That’s a one year low for the Qi Fair Value Gap.
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Chiina
20.04.2021
EM Rates: Time to re-think
China allocations
All 10y yield models within Qi’s universe of EM rates are in regime, & expensive to macro model value. That is especially true in Asia, & China in particular.

After months of substantial inflows, there has been a pause in foreign buying of Chinese government bonds. The WSJ cites valuations, especially narrower yield spreads versus US Treasuries, plus an end to the Renminbi’s 9 month rally as reasons for the hiatus.
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19.04.2021
Saboteur Looks to the Stars for Quant insight Rebrand
Monday 19 April 2021 - Brand studio Saboteur has unveiled a radical new rebrand for financial data company Quant Insight.

Quant Insight (Qi) is an innovative and unique provider of financial market analytics. Mathematical models from the science of astrophysics are used to decode the massive torrents of macro data that flood through the financial markets every minute of every day. It’s an inspired move – astrophysics is the art of finding patterns and connections in complex systems with billions of moving parts. So what happens if this science is applied to the financial markets?
It is, like all great ideas, brilliantly simple.
It’s a radical approach that demanded a radical new design.
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Nasa Rtzw4F02Zy8 Unsplash
19.04.2021
What's happening with US bond yields?
Short covering. Japanese buying at the start of their new fiscal year. Safe haven demand. The usual guessing game to explain the sharp move lower in US Treasury yields is well underway.
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Nasa Hi5Dx2Obas Unsplash
15.04.2021
Copper - the pause that refreshes
After a huge rally over 2020, Copper has paused for breath over the last few months.

Critically though, macro fair value has not deteriorated. Model confidence remains high & tracking GDP growth for US, China, Europe & Japan remain the dominant drivers. Dr Copper retains its role as a bellwether for the global economic cycle.
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Ft1
14.04.2021
Qi & the FT
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Juskteez Vu Tirxot28Znc Unsplash
14.04.2021
Tactical Asset Allocation:
The Global Multi-Asset view
Qi's TAA analysis marries macro regime & macro valuation, with trend & momentum dynamics.
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13.04.2021
A turn in Asian tech?
Asian exchange ChiNext was the first global technology instrument to fall out of a macro regime last year; moving ahead of similar regime shifts for US & European tech. It remained below our 65% threshold for the last 6 months but has now entered a new macro regime.

Model confidence is currently 71%, having risen 33% in the last 2 months.
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Jake Weirick 09Bqxnvo7Eu Unsplash
13.04.2021
Long & wrong in EM?
Positioning surveys suggest long Emerging Market equities remain a popular position. Yet they have underperformed the S&P500 by almost 15% in 2months & are now at levels not seen since September.
Juskteez Vu Tirxot28Znc Unsplash
12.04.2021
US bank earnings
Financials kick off US earnings season with several blue chip names reporting this week.

All bar one of those reporting this week are in strong macro regimes.
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Orion Nebula 11107 1920
09.04.2021
Mind the gap
VIX closed at its lowest level since February 2020 last night. The “fear gauge” is signalling all is well in the world of US equities.

Qi’s macro valuation shows the S&P500 as largely in line with macro fundamentals. A +0.4 sigma (+2.4%) Fair Value Gap suggests it is only very modestly elevated versus its key macro drivers.

One cautionary note, however, is the divergence between VIX & Qi’s Vol Indicator.
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09.04.2021
Divergent Recoveries
The IMF have warned about “divergent recoveries” as a potential threat to the global economy in general, & Emerging Markets in particular.
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Anna Anikina Ath9Gmakfpe Unsplash
08.04.2021
Infrastructure Super Cycle
What is the best way to trade President Biden’s American Jobs Plan? Qi’s Infrastructure Super Cycle Watchlist contains a mix of US single stocks, sectors & thematic ETFs.
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07.04.2021
Japan
USDJPY is back in a macro regime. It is also 1.7 sigma (2.7%) rich to macro fair value. It got as high as +2.2 sigma (+3.5%) at the end of March, but model confidence was still just below our 65% threshold.

Now our R-Squared criteria is met & we have an inflection sell signal - both spot price & Qi model value have moved lower over the last 3 days.

If the Yen were to strengthen, traditional perceptions would see that as a potential headwind for Japanese equities. What are the current key drivers for the Nikkei & TOPIX?
Evgeni Tcherkasski Bfbhwj4Qafo Unsplash
01.04.2021
Infrastructure
One option for trading President Biden's new American Jobs Plan is the PAVE ETF which tracks the US Infrastructure Development Index.

PAVE is in a strong & stable macro regime. Model confidence is a robust 94% currently, & it hasn't been below 80% in the last 12 months. Macro matters.

What are the key drivers, & to what extend has it priced in the Democrat's plans?
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Omega Nebula 11053 1920
31.03.2021
Gold vs. Bitcoin
Bitcoin is many things to many people but, on the current pattern of associations, it offers a more efficient inflation hedge than Gold.

Gold has a valuation edge - it is now one sigma (4.7%) cheap to macro fair value.

Bitcoin's model value is around 60,000 so it is effectively in line with its macro environment. Both are in strong macro regimes but the contrast in sensitivity to inflation is the most striking feature.
30.03.2021
Rates on the move
US interest rates are on the move once again. Nominal 10y yields have hit a new 2021 high while 10y real rates have risen 10bp this week alone.

The critical question for equity investors remains whether rising yields are a benefit as they reflect a bullish growth backdrop. Or, by tightening financial conditions, represent a headwind to future performance. Qi empirically demonstrates the sensitivity of different US equity sectors to US real rates.
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Jeremy Thomas E0Ahdsenmdg Unsplash
29.03.2021
The US Dollar
Screening across all Qi's currency models for the 10 biggest valuation gaps results in seven of them being crosses that involve the US Dollar.

All seven show the Dollar as rich versus macro model value.

Four of those seven show the FVG at a 1 year extreme.
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Cameron Venti Xkcaeep4Ui4 Unsplash
26.03.2021
EURUSD
The down trade in EURUSD over March has not been driven by deteriorating macro fundamentals. Qi model value has moved sideways & that has opened up a 1.26 sigma (2.8%) Fair Value Gap
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26.03.2021
Qi & EPFR
EPFR's best-in-class flow/sentiment data, allied with Qi's macro framework is a formidable combination.
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25.03.2021
An efficient 'risk off' play
Nervous about the re-opening trade? That the rotation trade of the last 3months is vulnerable to further unwinds?

Qi has a Divergence signal on the US Materials versus Industrial ratio (XLB vs. XLI). Both are cyclicals but one - Materials - is the more geared to 'risk off' & is currently cheap to Industrials relative to the macro environment.
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Jeremy Thomas E0Ahdsenmdg Unsplash
25.03.2021
Semiconductors
Earlier this month “Regime Shift in Tech” flagged how Technology was falling out of a macro regime. But while NASDAQ, US IT & European Technology all saw macro’s explanatory power fall, Semiconductors were the outlier – still a macro play.
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Rvdb
24.03.2021
Qi & Real Vision
Qi talk about the NASDAQ & the broader technology space. A change in factor leadership early in Feb left it the most vulnerable to a Fed Taper Tantrum style scenario. Then, early in March, it fell out of macro regime altogether. Real Vision's Jack Farley interviews Qi's Huw Roberts.
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Hs 2009 25 Hubble
24.03.2021
Beware Risk Off?
The Kiwi has turned sharply lower – a warning for broader risk appetite?

The fall in spot NZDUSD fx has prompted spot price to diverge from macro model value & open up a Fair Value Gap of -1.15 sigma (-4.7%)
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23.03.2021
Momentum loves Value
The one year anniversary of the 2020 Covid lows has factor investors on watch for a potentially significant shift in momentum strategies. A shift where the composition of momentum pivots away from technology & towards value stocks.
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22.03.2021
US bond sell-off: What's the impact on EM rates
While Chairman Powell seems relaxed about recent moves in the long end of the US Treasury market, it does raise increasing concerns for EM debt markets. More specifically, which EM rates markets are most sensitive to the gyrations in US bond markets?
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19.03.2021
Crude Oil
The sharp fall in spot crude oil prices over the last 10days sits in sharp contrast to macro-warranted model value. In the case of Brent, while spot has fallen 5.2%, macro fair value has risen 8.7%. For WTI, the equivalent numbers are -6.0% & +11.6%.

Commodities always come with a health warning & require strong risk management given the propensity for adverse weather, geopolitical headlines or supply shocks to spark substantial volatility. However, macro model confidence is robust & both have now triggered Divergence signals on Qi. Moreover, back-testing the current -1.1 sigma FVGs on Brent & WTI, results in hit rates in the 70-75% area with double digit average returns.
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18.03.2021
The big picture
After last night's Fed meeting the picture left is one of stronger growth, higher inflation, easy monetary policy – it’s a combination that inevitably leads investors to yield curve steepeners, cyclical & value stocks, EM & commodities. But what’s the quantitative picture?
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17.03.2021
A cheap European reflation play
European Basic Resources are cheap versus their peers on macro model valuations; there is a new Qi Divergence buy signal; it is a bet on European reflation.
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01.01.2020
Upgrade: Macro factor shifts
Qi now displays the top 10 moves in macro factors over the last week, immediately highlighting where big macro shifts have taken place. For time poor investors, the chart makes any big regime shift - a tightening in financial conditions, a deteriorating in risk appetite or a spike in inflation fears - obvious & easy to follow.
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01.01.2020
Upgrade: Tactical Asset Allocation framework
Qi takes the traditional investment clock to the next level, helping clients identify which regime – Goldilocks, boom, stagflation, recession - any security resides. No opinion but the empirically observed pattern of association over time.
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01.01.2020
Upgrade: Volatility Indicator
The Qi Vol Indicator has a good track record for leading spikes in VIX. Qi provides clients an alternative to the traditional fear gauge as a way to track regime shifts between “risk on “ & “risk off” environments and acts as red flag for less stable market trading conditions.
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25.11.2021
Beware High Yield
The iShares ETF tracking US High Yield is once again being driven by macro factors after 3 months out of regime.
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It is also below macro model value. The latest widening in HY credit spreads leaves spot HYG 1.4 sigma or 0.9% cheap to model. While that FVG is towards the bottom end of recent ranges, model fair value is trending lower. When fundamental macro conditions continue to deteriorate as they are currently, Fair Value Gap signals come with a health warning.
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It is worth comparing the US High Yield model to its Asian equivalent. The iShares Asian High Yield ETF AHYG is in a strong macro regime but, in contrast to the US, it screens as rich to model. A +1.1 sigma FVG means it is 6.9% above macro fair value.
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Like US High Yield, macro fair value is trending lower. The recent bounce in AHYG has not been supported by macro factors, but by flows – the ETF has seen a surge of inflows of late.

In Asia, hopes Beijing eases policy to help the property sector has prompted a wave of bottom fishing in AHYG. Thus far, the flow-induced rally exceeds any improvement in macro fundamentals. The macro environment is also poor for US High Yield, but there spot HYG has priced in a fair degree of bad news.
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24.11.2021
Equities lead bonds?
US Financials hit one sigma cheap versus US Real Estate last week. That’s one of the biggest Fair Value Gaps of the last 12months.
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Previous analysis has discussed how the relative value between Financials & Real Estate can be used a way to capture the equity market’s view on interest rates - REITs tend to outperform (underperform) banks when bond yields are falling (rising).
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The FVG on XLF vs. IYR has already corrected. From -1 sigma cheap on Friday to zero now. The move in bond yields post Powell’s renomination as Fed Chairman has seen Financials outperform.

Similarly, the -1 sigma FVG early in Sep occurred a few weeks before a 25bp back-up in 10y US Treasury yields. This begs the question can the Financials / Real Estate ratio offer any signal for US yields?

On the chart above the green vertical lines show every time the XLF / IYR ratio has hit 1.5 sigma cheap on Qi. That’s happened 12 times since 2015. On four occasions 10y US yields fell over the next few weeks; but eight times yields rose &, on average, that move was worth 7bp over the subsequent 4weeks .

A long way from being conclusive, but an example of how to use Qi data in your workflow. Markets often work with leads & lags; different asset classes discount macro shifts at different speeds. The Qi framework helps highlight how dislocations in one corner of the market can help signal opportunities elsewhere.
19.11.2021
Black Friday
Black Friday is a week today. It had already become more than a one-day event but that is especially true this year with supply constraints prompting a flood of early shopping.
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That was the message from “Black Friday starts now” where RETINA flagged that US Retail was cheap to the broader market back in mid-October ahead of an early & more protracted shopping season. Retailers subsequently outperformed the S&P500 by 7.5% & Qi’s XRT vs. SPY model now sits 0.7 sigma (2.5%) rich to macro.
Friday
During earnings season several retailers have referred to the threat from inflation. Bottom-up analysis looks at companies pricing power; Qi looks at a stock price’s relationship with inflation expectations.

The chart shows those retail Consumer Discretionary stocks that benefit (suffer) from rising inflation to the right (left) of the vertical bound. We also add a valuation overlay. Red (green) stocks above (below) the horizontal bound are rich (cheap) to macro model value.

The majority of retailers still want reflation but a sizeable minority now have a negative relationship where rising inflation is a headwind; presumably a function of margin compression.

Bed, Bath & Beyond is an example which also screens as 29% rich to model. Note though inflation is not a significant driver versus other macro factors. Garmin however has just started a new macro regime with inflation the top driver & the relationship is negative. The macro perspective suggests it is a stock that, on current patterns, has little pricing power.
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18.11.2021
China risks
- a stress test for US equities
US Treasury Secretary Janet Yellen told CBS News an economic slowdown in China would have “global consequences”. Hardly new news, but a major tail risk facing all money managers.
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Here we look at any US equity sector ETF with model confidence of at least 50% & then shock two China factors - Chinese GDP growth & sovereign CDS spreads - by two standard deviations. The blue bars show the subsequent percentage gain or loss in macro model value.

In short, US equity investors hawkish on China can find refuge in biotech but need to be wary of any energy exposure & the housing market.
China Scenario Analysis
The sector most vulnerable to a China shock is US energy. Every other macro factor held constant, XLE, XOP & OIH model value falls between 0.5 & 1.0% in the China stress scenario. They are, however, all already cheap to macro fair value.

Transport ETF IYT is the next most sensitive & is slightly rich (+0.3 sigma, +1.4%) to model. The standout though are Home Builders XHB & Home Construction ITB. Both screen as vulnerable & both are around one sigma rich to model.

Only two sectors see model value rise in this China shock scenario. Biotech ETFs IBB & BBH represent the best defensive play.

The Qi framework allows investors to run empirical scenario analysis. Not educated guesswork, but the quantified impact on any asset from an isolated move in certain macro factors.
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16.11.2021
Fade European Covid fears
Mainstream media is full of stories about new restrictions in Europe as it once again becomes the epicentre of Covid cases. Equity markets have responded by selling the EU Travel & Leisure sector.

On Qi, this sell-off has taken the sector into potentially interesting territory.
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Tuesday2
In outright terms, Travel & Leisure is 1.1 sigma (4.0%) below model fair value. Relative to the Euro Stoxx 600 it is 1.2 sigma (7.4%) cheap to macro. Both are 1y lows for the Qi Fair Value Gap.

Covid clearly represents a fairly unprecedented shock so back-tests come with a strong health warning. Still, as a guide, using these FVGs as dip buying levels since 2009 reveals hit rates of 67% & 78% respectively. The average returns were +4.0% & +1.0% respectively.

Of the ten biggest FVGs amongst Qi’s models for European sector relative value, seven involve Travel & Leisure; & all show it as cheap versus its peers.

A fair amount of bad news would now appear to be priced making the sector a potentially interesting vehicle for anyone with a contrarian stance with regards to the pandemic & the European economy.
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11.11.2021
The view from 10,000ft
A step back to look at the big picture. What’s the view across asset classes from a quantitative perspective?
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Qi Watchlists allow clients to customise any list of securities by asset class, geography or theme. Here we curate a list of assets typically seen as sensitive to the global economic cycle.
Thursday
US break-evens are elevated (but out of regime) while the yield curve is too flat relative to model. The message from the bond market is Central Bank’s reaction function has changed. No longer content to watch-&-wait for inflation to self-correct, sticky inflation requires a policy response & that threatens future growth.

Cyclically-sensitive AUDJPY is also mildly concerned – it is modestly cheap to model. It’s a similar picture in commodities – oil & copper both modestly cheap. Gold is marginally rich to copper in RV terms, IAU vs JJC.

The equity picture is mixed. It’s marginal but, in the US, both small caps & tech are modestly rich versus large caps; Growth a tad rich versus Value. A classic cyclical vs defensive play like XLF / XLU is at fair value.

European internals are more cautious - Staples are rich vs Discretionary (STS vs. STR) – but overall equities, for now, don’t appear threatened by the message from Fixed Income.
10.11.2021
Upgrades
The home page of the Quant Insight web portal has been upgraded. New features include:

* Qi Vol Indicator
* Tactical Asset Allocation
* Macro factor shifts
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The Qi Vol Indicator
  • The Qi Vol Indicator has a good track record for leading spikes in VIX. Qi provides clients an alternative to the traditional fear gauge as a way to track regime shifts between “risk on “ & “risk off” environments and acts as red flag for less stable market trading conditions.
  • A spike in the Qi Vol indicator implies markets are being driven by more transient factors like flow, positioning & sentiment. All of which are typically more volatile than macro fundamentals.
New1
Tactical Asset Allocation framework
  • Qi takes the traditional investment clock to the next level, helping clients identify which regime – Goldilocks, boom, stagflation, recession - any security resides. No opinion but the empirically observed pattern of association over time.
  • All neatly captured in a time lapse chart that allows the user to travel through time to asses the evolution of each securities’:
1.) Sensitivity to economic growth
2.) Sensitivity to inflation
3.) Valuation edge
4.) Importance of macro
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Macro factor shifts
  • Qi now displays the top 10 moves in macro factors over the last week, immediately highlighting where big macro shifts have taken place. For time poor investors, the chart makes any big regime shift - a tightening in financial conditions, a deteriorating in risk appetite or a spike in inflation fears - obvious & easy to follow.
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  • Clients can also choose the factor they are interested in to see the historical evolution of the driver z-score, providing a great way for investors to put macro factor shifts into a more meaningful context.
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For more details on our product upgrades or if interested in testing this Qi dataset, delivery method or reports please contact a Quant Insight representative:
info@quant-insight.com
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09.11.2021
China contagion?
It is no longer an idiosyncratic story about Evergrande. Other Chinese property firms such as Country Garden, Vanke & Sino Ocean are now feeling the pressure too.
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The jury is still out on whether this represents contagion amongst real estate companies alone; or whether the sheer size of the property sector means stress here has broader ramifications for the Chinese economy.

For now, most financial ‘tourists’ following the story use ETFs like AHYG – the iShares USD Asia High Yield Bond ETF. On Qi, AHYG is in a strong macro regime (87% model confidence) & there is no Fair Value Gap – the market is moving in line with macro fundamentals.
Tuesday
The standout feature though is macro-warranted model value. The red line is still trending lower. If anything, the downtrend appears to be accelerating.

AHYG may not currently offer any tactical valuation edge (Qi Fair Value Gaps highlight dislocations & therefore trading opportunities) but, for now, the combination of key factors like Chinese GDP growth, commodity prices, real rates, inflation expectations, the Dollar & risk aversion all continue to point to a deteriorating macro environment.

What could prompt a change in trend? The obvious candidate is a policy response - official credit stimulus would impact several of the key drivers above. Absent that, the current patterns suggests the macro outlook remains bleak.
04.11.2021
Decision day at the BoE
A look at Sterling fx as we head into today’s finely balanced BoE rate decision.
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What is evident looking at the GBP fx watchlist below, is that GBP is generally cheap versus its peers relative to the macro environment. Looking at the key drivers on the right it is also evident that interest rates are a key driver of Sterling once again.
Thursday
Several GBP fx crosses have experienced sharp falls in model confidence of late. EURGBP for example has fallen 18% in the last 2 weeks & now sits at 53%. The equivalent numbers for GBPAUD are -17% to 58% now.

Of those in regime, interest rate differentials are the key driver of GBPSEK & GBPJPY. All else equal, higher nominal UK yields versus Swedish & Japanese yields will be GBP positive. The latter though is close to fair value; it is GBPSEK which presents a valuation edge being 1.9 sigma (2.2%) cheap to model.

Moreover, BoE QT expectations is the biggest single driver of GBPSEK & the relationship is positive. Ending QE early (currently slated for December) could provide the cross with a significant boost. Combining a rate hike with early QT is a powerful combination for GBPSEK in particular.

The regime is different for cable – real yields matter more than nominal rates, but it also emphasises domestic GDP growth & commodity prices.

It is cheap (-0.7 sigma, -0.8%) but whereas Sterling bulls buy GBPSEK for a hawkish BoE policy response, they should buy cable if bullish on the UK economy. Put another way, a BoE policy error has the potential to hurt cable more.
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02.11.2021
Go Green
Several of Qi’s ESG models focused on the environment have moved into rich territory. The spike in traditional energy costs, plus hopes the Biden infrastructure deal boosts investment in clean energy have been useful tailwinds.
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More recently, a huge rally in US renewable energy company Enphase has added additional momentum. It rose 25% last week after strong earnings & new product innovation. ENPH is now almost 30% rich to macro fundamentals but model confidence has fallen sharply – the idiosyncratic news about their new solar microinverter trumps the influence of macro right now.

Enphase is a major holding for several thematic ETFs. It constitutes 12.4% of the Invesco Solar technologies ETF TAN & 8.7% of iShares Global Clean Energy ETF ICLN.

Both ETFs are approaching 2 sigma (~20%) rich to macro model value in outright terms. They are also outperforming their peers & the broader market. Both TAN vs. SPY and ICLN vs. XLE are almost 1.5 sigma rich to model. All four models are in regime & show fair value moving sideways. The latest rally has moved clean energy ahead of macro fundamentals.
Tuesday3
Moreover, it is not just a US phenomenon. The outperformance of the FTSE Environment Opportunity Asia Pacific index versus the standard FTSE Asia index can be seen in the white line above. But macro-warranted model value (the red line) is deteriorating; hence a +1.8 sigma (+3.6%) Fair Value Gap on Qi.

COP26 could deliver a significant policy shift that fundamentally moves the goalposts for clean energy. Absent that, & from a tactical macro perspective at least, it seems late to be chasing the move here.
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29.10.2021
Qi Credit Impulse
Qi’s credit impulse suggests global markets are experiencing a sharp tightening in financial conditions. That is true for all, but especially in the US, Europe & UK.


Measures of credit impulse & financial conditions are not new. Several versions exist, all with subtle variations in the indicators they include & the methodology employed to calculate them.
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Qi includes a range of factors in our models that speak to the ease of obtaining credit, the availability of liquidity & overall financing levels. They include:
  • Investment grade & high yield credit spreads
  • Central Bank rate expectations (STIRT calendar spreads)
  • Central Bank QT expectations (interest rate volatility)
  • the availability of US Dollar liquidity (cross-currency basis swaps)
  • the level of real yields
  • the shape of the yield curve
  • currency strength in TWI terms
All are in z-score terms, showing how far each factor is from its long term trend. They are simply aggregated together & then the mean displayed here with a lower (higher) number pointing to tighter (easier) credit conditions.

In absolute terms, several of these indicators will have been significantly tighter in the past. However, in terms of the rate of change relative to trend, markets are experiencing a sharp squeeze in credit. Historically, such moves are not friendly for risky assets.
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28.10.2021
ECB day
It’s a particularly important ECB meeting. Just 3 months ago they announced a dovish policy pivot. Yet the new policy guidance hasn’t spared Europe from a sharp re-pricing in rate expectations - money markets are now discounting earlier ECB rate hikes.
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Do markets not believe the ECB’s dovish forward guidance? Or, do they believe it, but simply think it will be overwhelmed by supply bottlenecks & rising inflation?

If you believe Lagarde stresses the ECB’s dovish policy stance & bond markets react by continuing to push break-evens higher & real yields lower, then short EURUSD is the better trade. Real yield differentials remain the key driver of the cross according to Qi where model confidence is 82% & spot is modestly (0.3 sigma, 0.4%) rich to macro.
Thursday
Meanwhile EURJPY is driven by a more nuanced combination of nominal rate differentials & risk appetite. A hawkish pivot by Lagarde that, relatively speaking, raises nominal European yields would, all else equal, drive EURJPY higher.

If that prompted a ‘risk off’ move, with VDAX a negative driver, rising risk aversion would negate that & depress model value. But, if equities interpret that as the ECB being pre-emptive & ahead of the curve, & Euro Stoxx rally / VDAX falls, then that’s a powerful combination for a long EURJPY position. Currently EURJPY is bang in line with model fair value.

By identifying the regime & specific drivers of different Euro crosses, Qi can provide a roadmap for the different scenarios investors are considering for today’s ECB meeting.
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26.10.2021
China exposure
There is an increasing amount of commentary focusing on the downside risks to Chinese economic growth. Bottom up analysis will focus on those companies who derive a significant portion of their revenue from sales in China.
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That’s a good starting point. However, given this is a macro argument, where possible it makes sense to complement analysis of company fundamentals with a macro perspective. This Qi Watchlist contains 25 global stocks whose earnings rely on macro conditions in China. Here we focus on the five with the richest valuations, i.e. those most vulnerable if the consensus about slower Chinese growth is correct.
Tuesday
Adidas & Infineon Technologies are both out of regime. Low model confidence means idiosyncratic risks are more important than macro factors currently. For these, bottom up analysis is sufficient.

Asian financials HSBC & Standard Chartered are both around 6.0% rich to macro. Both want healthy economic growth (China tracking GDP, higher commodity prices) & rising interest rates (both real rates outright & steeper yield curves). All intuitive but, at these Fair Value Gaps, both have discounted a fair amount of good news. For those bearish on Chinese economic growth, they look vulnerable.

Richemont is the world’s second largest luxury goods firm & an obvious victim of President Xi’s “common prosperity” push. Yet spot price has been rallying of late & has now moved back towards the highs seen prior to Beijing’s focus on greater social equality. That has left it 6.7% rich to macro on Qi. Another efficient vehicle for those worried about downside risks in China.
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21.10.2021
Time to re-visit
Value vs. Growth?
The reflation trade after the Democrat’s win in Georgia seems a distant memory. Value has reverted to type & once again been underperforming. Yet, from a macro perspective, there are emerging signs that Growth could be vulnerable.
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The chart shows Qi’s model for large cap US Value versus Growth via the Vanguard ETFs VTV & VUG. The white line shows the spot VTV / VUG ratio heading lower once again. Growth is outperforming. In contrast, the red line shows Qi’s fair model value rising - macro fundamentals point to Growth underperforming. The divergence means Value is now one sigma (4.9%) cheap.
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Unsurprisingly, such Fair Value Gaps don’t back-test well. Buying VTV vs. VUG at -1 sigma since 2009 produces a 47% hit rate. Don’t fight big tech basically! At least at these FVGs.

So why mention now? Both models are in strong & stable macro regimes; and both show the same highly intuitive set of drivers. Reflation (stronger growth, higher commodities, rising real rates & steeper yield curves) favour Value over Growth. So far, no surprise.

Note though that Fed & CB QT Expectations are the dominant driver. In the VTV vs. VUG model it alone accounts for 27% of model explanatory power. For those who follow the volatility markets (which is the proxy Qi uses to measure QT expectations) a big divergence has opened up between bond & equity vol. MOVE has been flirting with YTD highs; VIX is back well below 20.

Don’t fight big tech is tough to argue with. But, for anyone worried about equity market complacency relative to the message from the bond market, Growth as a style factor could be vulnerable & an interesting trade expression.
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20.10.2021
Why are US equities rallying?
Money markets are pricing in additional Fed rate hikes; the bond market fears that could amount to a policy error that derails growth. And yet US equities continue to rally. How can we square this circle?
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Having fallen out of regime late in August - & flagged the increased volatility experienced over September – the S&P500 has now seen model confidence rise by 35% in the last 4 weeks. We’re not quite there, but a new macro regime is on the verge of being formed. What's driving the new regime? First & foremost US equity bulls need tight credit spreads.
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In addition, the new regime shows SPX rises when Fed rate expectations rise & the yield curve flattens. While a flatter yield curve suggests the bond market is worried about forward growth, the equity market see’s a Fed policy stance that is ahead of the curve.

A pre-emptive Fed that hikes earlier, means less rate hikes overall. Money markets might be pricing a higher terminal rate than before, but it’s still a contained hiking cycle relatively speaking.

The real policy error is a Fed that’s behind the inflation curve. Policy that is too lax for too long means the bond vigilantes steepen the yield curve & that’s a negative for US equities on current patterns.

This is not yet a confirmed regime & factor leadership could yet evolve further before model confidence crosses the 65% threshold. One dynamic we are watching closely is a new pattern of negative sensitivity to inflation expectations. That implies “bad” inflation for equity markets – the type that compresses margins &/or forces a Fed policy response (one with a higher terminal rate).

Tracking these shifting relationships is tricky but Qi provides a transparent framework.
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13.10.2021
Transitory a 'dirty word'
Governor Bostic has revealed he & his staff at the Atlanta Fed have a swear jar labelled “transitory”, & they have to forfeit $1 each time they use the “t” word. A neat story that captures how far the debate has swung away from the idea inflation is temporary.
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As we enter earnings season it is evident that the inflation dynamic continues to deteriorate for US single stocks. “US equities & inflation - a regime shift?” first flagged the shifting pattern by isolating individual stocks independent sensitivity to inflation expectations.

The orange line showing the number of stocks with positive sensitivity to US inflation expectations has fallen to a fresh low. Just 117 S&P500 stocks in macro regimes now see rising inflation as a tailwind for performance. That’s around a third of the total that were enjoying the reflation bounce in Q1.
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Back in March, the number of stocks in regime with a negative relationship (“headwind”) was effectively zero - the reflation narrative was all encompassing. Now that number is 41.

That total of 158 stocks shows the degree to which US equities remain out of regime. Currently non-macro factors are bigger drivers of price action than economic fundamentals, financial conditions or risk appetite. Qi has repeatedly demonstrated that leaves the market more vulnerable to transient factors like positioning, flow & sentiment – all of which are inherently more susceptible to bouts of volatility.

At the index level, model confidence for the S&P500 is now back at 50%, up 34% in the last 2 weeks alone. A new macro regime appears to be forming & sensitivity to inflation has just edged into negative territory. A major macro shift appears to be on the cusp of confirmation.