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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.

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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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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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?
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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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Adam Birkett 77Hmm5Tg N4 Unsplash
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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Ferenc Horvath Skcfibu91Aa Unsplash
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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Nasa Hi5Dx2Obas Unsplas
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.
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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.
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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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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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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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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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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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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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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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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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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.
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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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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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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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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.
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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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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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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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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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14.04.2021
Qi & the FT
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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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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.
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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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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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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?
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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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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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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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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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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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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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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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Close
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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.
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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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Increased freight & warehouse costs could yet compress margins but, for those anticipating decent volumes in the months ahead, it is worth noting that, on Qi, US retailers (XRT) currently screen as cheap versus the broader market (SPY).

The XRT vs. SPY ratio is 6.25% below macro-warranted model value. That’s the biggest deficit to macro fair value in the last year.
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It is also a statistically significant level. There have only been 10 instances since 2009 where XRT vs. SPY has been this far below model fair value when in regime. Buying the dip at that level elicits a 60% hit rate for an average return of +0.8%.

The macro regime is all about domestic & global reflation. Retailers outperform the broader market when US real rates are rising, the yield curve is steepening & when global growth (China GDP plus commodities) are robust. A strong Dollar is the biggest single negative.

For those who believe in US consumers & their appetite to fuel a robust shopping season, this looks like an attractive entry level to play upside amongst US retail stocks.
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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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The chart shows US & European 5y inflation expectations in z-score terms. Both are running above long term trend but the most noticeable feature for the last month plus had been the divergence between the two.

The global energy crunch hit Europe harder which experienced a 2 standard deviation move in inflation expectations. That erosion in real yield support was negative for the Euro & helped push macro fair value for EURUSD down towards 1.15. If this re-convergence proves sustainable, the 3 month downtrend in macro-warranted model value for EURUSD could be coming to an end.
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This catch up in US inflation expectations will have broader implications. Which are the best inflation hedges currently? Qi’s “Commodity Super Cycle” watchlist suggests commodity energy markets are rich (though not in regime), while most commodity currencies have already priced a degree of good news. Base metals & certain mining stocks (Freeport, FCX & copper miners ETF, COPX) have lagged, sit in regime & at macro fair value.

Furthermore, Q3 earnings season will no doubt focus market attention on those stocks that enjoy pricing power versus those experiencing margin compression. Equity investors know their style tilt – the degree to which their portfolio favours growth over value, momentum or quality – but can they quantify the relationship their holdings have with inflation expectations?
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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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It’s geeky but, in short, negative basis swaps imply the cost of accessing USD funding is becoming more expensive for foreign banks. In the chart below for example, note the huge spike lower / squeeze in USD liquidity in March 2020 with the first economic lockdowns.

The chart shows USDJPY cross-currency basis specifically & in z-score terms. So the recent sudden leg lower below the zero bound implies tighter USD liquidity for Japanese institutions.
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Any asset with a positive relationship to this factor needs easier USD liquidity to perform; & conversely, will suffer as US liquidity tightens.

The US debt ceiling issue was threatening to become a meaningful headwind for such assets given the factor move above. That move may abate near term but could easily re-appear as a critical driver of markets if the whole stand-off is repeated come December.

It’s early days but S&P500 model confidence has risen 24% in the last 2weeks suggesting a new macro regime could be forming & cross currency basis swaps feature as a top driver. If that relationship holds, another significant tightening of US liquidity in December could be a far bigger deal for US equity markets.
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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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That represents a perfect round trip since “Suga high” on September 6th when the Nikkei was 1.3 sigma (4.1%) rich on Qi. That flag was a little early (the Nikkei peaked a week later) but the message was simple – while politics had powered the rally, Japanese equities were in a strong macro regime & at valuations that look stretched. What’s the macro picture now?
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Nikkei model confidence dipped (in line with its global peers) but critically stayed in a macro regime – a regime that emphasises domestic reflation (rising inflation expectations & a steeper yield curve) & easy financial conditions (Central Bank QE & tight credit spreads).

That combination of macro factors are offsetting each other such that macro model value is currently moving sideways. Hence the sudden & substantial Fair Value Gap.

How significant is this FVG level historically? Since 2009 there have been 13 occasions when the Nikkei has been in regime & 1.3 sigma cheap to model. Buying the dip has produced an impressive 85% hit rate for an average return of +7.6%.

As always, this time could be different. It feels like equity bears are gathering a bit of momentum right now. But it ‘felt’ like Suga’s resignation was going to be the catalyst for the great Japanese catch-up trade. For those who believe this is merely a correction, one of the world’s most cyclical assets is presenting an interesting opportunity.
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04.10.2021
Contagion
Not Evergrande & Chinese real estate, but US retail.
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Last week, poor results from Bed Bath & Beyond saw the stock fall 20% plus. Qi’s BBBY model is not in regime &, as such, the 1.9 sigma (46%) deficit between spot & macro fair value, comes with a health warning. Note though model confidence has risen nearly 20% in the last month &, at 53%, is close to forming a new macro regime.

It is noticeable that the drivers of this fledgling regime are similar to the broader US Retail sector. XRT model confidence is high (71%) & stable. Retail bulls want domestic US reflation (higher real rates, steeper yield curve, rising inflation expectations) married to global growth & no stress in China.

Together that mix means Qi macro warranted fair value is currently trending sideways. Last week’s sell-off means spot price is diverging lower. As a result, XRT is 0.5 sigma (4.7%) cheap to model. That’s close to a 1y low for the FVG.
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XRT may be too broad a vehicle. Some may argue fiscal stimulus plus suburbanisation / home improvement trends combined to give previously beaten up old school retailers a lift; & now, as the tide goes out, the bricks-&-mortar versus online retail split will reassert itself.

Fair, but note online retailers have also been caught in the downdraft. IBUY is now 0.5 sigma (3.2%) cheap to its macro environment. A buy the dip opportunity for a secular outperformance trend; or, could there be a broader message about US growth at work?
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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Each cell in the grid below shows the Qi Fair Value Gap for that FX pair. The bigger the positive (negative) FVG the deeper red (green) the cell is coloured. Black font in the cell means the cross is a function of macro factors; when greyed out, that model is out of regime. Read down each column to get the aggregate picture for any one currency versus its peers.
Fx
Every USD fx pair is in a macro regime. Crudely, half are close to fair value, & half show the Dollar as modestly cheap. The two book-ends are AUDUSD where RETINA™ has posted a bearish inflection signal, & cable.

The recent spike in risk aversion has moved AUDUSD model value down below 0.70 leaving Aussie rich & vulnerable. It looks the best G10 candidate for those looking for further USD strength.

Indeed, Aussie crosses are consistently in macro regimes & rich. While that may surprise some given the 2.7% fall in Aussie TWI since the end of June, that fall has not kept pace with the macro factors – China, commodities, rate differentails, risk appetite – that currently drive it.

Cable is the one cross where the USD is rich: +1.1 sigma or 1.3% above model. Moreover, Sterling is consistently cheap, maybe confirming what some see as its new status as an EM currency.

Marrying the two together, contrarians might want to look at GBPAUD which is now 1.75 sigma (3.9%) cheap to model. Since 2009 longs set at this FVG result in a 67% hit rate & +0.9% median return. Though most of those signals were before the secular shift that is Brexit.
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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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Labour costs were blamed for hitting FedEx results & driving the recent down trade. That move has taken the stock 10.4% below macro fair value. That’s a 1.1 sigma Fair Value Gap. Back-tests reveal buying the dip at that level produces a 55% hit rate. That hit rate jumps to 63% (for an average return of +2.6%) with a -1.5 sigma FVG.

Despite strong results Adobe stock has sold off. That has opened up a 13.2% FVG. All the good news is priced in goes the narrative.

Buying a -1.1 sigma dip since 2009 results in a 78% hit rate, +3.5% average return. A -1.5 sigma FVG is even more significant: 80% hit rate, +6.3% average return. The macro picture suggests a fair amount of bad news is priced.

For both, macro factors are important & can provide a roadmap of key valuation levels for those thinking about buying the dip.

Nike is not in a macro regime. We will defer to the bottom-up stock pickers on this one. Company fundamentals trump macro fundamentals currently.
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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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Risk Aversion Z ScoresCorporate Credit Z Scores
China CDS are narrowing but at a slower pace. Nevertheless, taken altogether, it suggests the market, for now, is confident Evergrande does not pose broader systemic risk.
China Stress Z Scores
That doesn’t negate fears about the potential drag on Chinese economic growth. Tracking sensitivity to these different macro variables as regimes shift & factor leadership changes will be vital into year-end.
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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Thursday
Qi uses the US inflation swaps market to measure inflation expectations. The chart above shows 2y, 5y & 10y expectations all in z-score terms. All three remain above the horizontal zero bound, but they are falling back towards long-term trend.

Qi’s 5s30s yield curve model is in regime & fair value has collapsed dramatically courtesy of events in China. China sovereign CDS is the biggest negative driver; iron ore & Chinese GDP the two biggest positive drivers. So this weeks’ China stress prompted a sharp re-pricing lower.

The spot yield curve has also flattened dramatically but not to the same degree. For those who believe China stress continues & is exported globally, there is scope for the curve to flatten further.

Together, a flatter yield curve & falling inflation expectations suggest the fixed income market is worried the Fed has abandoned AIT, has reverted to its more typical reaction function & the net effect could be detrimental to growth.

For equity investors it is more important than ever to identify & monitor the impact these two macro factors will have on your portfolio.
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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.”
See more
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.”
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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The Evergrande story has been in motion for months. Up until yesterday, contagion had been restricted to immediate peers – Chinese real estate / financial names, a few Australian miners.

What changed yesterday was the move in sovereign China CDS. In z-score terms, this was a 3 standard deviation move. Sovereign CDS liquidity is poor but the signal function is unmistakeable – markets moved this from an idiosyncratic story to one with potentially far broader ramifications.
China1
For the first time in a while the risk off move had a material impact on the credit markets – European financials & high yield especially. Again it was around a 3 standard deviation move.
Chinacredit
The spike in VIX was a 2 standard deviation move on Qi. VXEEM, VDAX & the gold/silver ratio experienced similar moves.
Chinarisk
What next?

China is the epicentre of current market moves & your view on how the Evergrande story unfolds is critical. China bears will see these factor moves as a genuine re-pricing. If so, Qi can high-light those markets that are lagging versus the new environment.

For example on current patterns that combination of China stress & broader risk-off spilling into credit has pushed Qi model value for 10y US Treasury yields below 1.00%. There’s more of a flight-to-quality move to come for USTs.

Alternatively, those who see Evergrande as localised, & simply a catalyst for a complacent market overdue a correction, use Optimise Trade Selection to screen for single stocks, sectors, ETFs sensitive to Chinese sovereign CDS spreads & with a negative Qi Fair Value Gap.

In times of stress it is more important than ever to quantify relationships between asset price & the macro environment.
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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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Intuitively, such drivers can be more volatile. New regulations may arrive unanticipated; positioning & sentiment are prone to wild swings. When macro fundamentals cannot explain price action, markets are at the mercy of more transient factors. Those can work as tailwinds or headwinds but they do imply enhanced volatility.
Image 1
The chart above shows macro model confidence across global equity benchmarks. Most lines were trending sideways at high levels – denoting that the majority have been in strong, stable macro regimes for around 18 months. But in the last two weeks macro’s ability to explain price action in the S&P500 has fallen 28% & model confidence now sits at just 16%.

The same phenomenon has occurred in Europe (Stoxx 600 confidence down 23% in the last 2weeks to 53%) &, to a lesser extent, Asia. In Japan, Nikkei 225 model RSq has fallen 13% to 77%.

The Kospi is notable – it was one of the first to see model confidence fall but has subsequently entered a new macro regime. One where FX shifts are critical.

The two outliers are the Shanghai Composite & the NASDAQ. Both fell out of their macro regimes earlier - around the end of the first quarter - & model confidence remains low.

Regime shifts are natural & macro fundamentals will reassert themselves. The emergence of new regimes & the drivers that lead them can be tracked in real-time on Qi. In the meantime, caution is warranted & sizing of risk becomes all the more important.
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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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Qi quantifies the independent relationship between any equity index & inflation. The chart below captures that sensitivity on the horizontal axis; the further out to the right any market is, the greater the benefit it derives from reflation.

Then we add a valuation overlay – red dots are rich to macro, green are cheap, faded colours means that model is not in a macro regime. Some standouts:
Tuesday
The models on the left (with a negative relationship with inflation expectations) are all out of regime. Put another way, on Qi there isn’t a single equity market in a macro regime that see’s inflation as a bad thing. Equities don’t fear margin compression or Central Banks being compelled to tighten policy early.

There is a bit of a Europe versus Asia split in terms of valuations. Japanese equities are the extreme with both Nikkei & TOPIX over 1.5 sigma rich, although both are seeing model confidence roll over. Malaysia (EWM) is also one sigma rich while a host of China-related plays are modestly above macro-warranted fair value.

The majority of green dots are European – notably Austria (EWO), Italy (FTSE MIB) & the broader Stoxx 600.
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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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Mon1
The signal is evident both in sector terms & via the respective tracking ETFs shown above.

The drivers of the EXH2 vs. EXH8 model are interesting & suggest the RV pair acts as a potential stagflation hedge. Financials outperform with rising EuroZone inflation & higher crude oil prices; but also falling Chinese GDP growth & lower iron ore prices.

Given the attractive entry level, this RETINA™ signal could appeal to anyone worried equity markets face headwinds from declining growth but sticky inflation.

Separately, RETINA™ has also flagged a bullish signal on European financials outright using the SX7E future. Banks are 1 sigma (8.1%) cheap to macro & while model value continues to trend higher, spot has started to roll over opening up a crocodile jaw pattern of divergence.
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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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Where are we now? “Max Policy”
  • We are at a maximal monetary and fiscal policy stimulus.
  • We have supply side bottlenecks from Covid, and “globalisation” has reversed somewhat.
  • The result of both the above was very strong GDP growth and Inflation.
  • Fiscal has also resulted in a large increase in government debt. But, with yields at these levels, governments have decided it is worth spending aggressively. They haven’t just smoothed out the Covid recession, they have converted it into a boom!
  • There is also a very large amount of corporate debt in the system
What are the risks? And how can Qi help?

1.) Monetary Policy Shift


Clearly, if the Fed shifts to a tightening bias, markets won’t like this, especially if the speed of response is fast rather than gentle.

Why would they tighten aggressively? Seems the only reason they would do this is if they felt long term inflation expectations were becoming “unanchored”. How would Qi pick this up?

If we see major US equity indices become negatively sensitive to long term (10y) inflation expectations, then that would be a sign that the market is worrying about a fast Fed tightening driven by higher Long Term inflation expectations. As another confirming factor, one would expect higher negative sensitivity to 10y inflation expectations compared to short term 2yr expectations.

If 10y nominal and real yields rise as a result of tightening, then we would see stocks showing significant negative sensitivity to higher rates.

We may also see stocks showing rising sensitivity to the US 5s30s yield curve.

S&P500 sensitivity to the US Yield Curve

* The chart shows the percentage impact on SPX for a one standard deviation increase (steepening ) in the US 5s30s yield curve, every other factor held constant.

* For most of 2020, the S&P500 wanted a flatter yield curve – suggesting reliance on QE & the Fed keeping rates low.

* That started to change after the November election result and, after the Georgia result in January, the relationship turned positive; i.e. a steeper yield curve was consistent with higher SPX. US large caps liked the reflation narrative.

* That shift proved short-lived & the relationship is modest currently but an increase in sensitivity could speak to another regime shift & a change in market perception around the Fed’s reaction function and its impact on future growth.
Macroroadmap Yc
2.) Fiscal Policy Shift

If the US signals an end or a reverse to fiscal expansion, this would probably see long term growth expectations decline; i.e. US 5s30s curve flattening.

If Qi shows rising sensitivity of stocks to the curve, then this could be a warning that peak fiscal has occurred and markets are worrying about payback.

3.) Credit Cycle Shift & Defaults

If the amount of corporate debt is in fact an issue, and rising defaults and rising rates are causing corporate pain, we will see an increase in sensitivity to HY credit spreads.

The chart shows the percentage impact for a one standard deviation increase (widening) in corporate credit spreads. The relationship is inherently negative – equities want tighter credit spreads.

Note the first leg lower in March 2020. This was the Fed’s initial policy response to lockdowns which included expanded QE – both in size, but also in scope, i.e. “fallen angels”.

SPX’s reliance on tighter credit spreads increased through the rest of 2020 – it was the dominant driver meaning while the Fed back-stopped credit spreads, dips in the S&P500 were buying opportunities. That changed after the Democrat win & the emergence of a fiscal response reduced sensitivity to credit.

If sensitivity picks up once again, that will reflect one of two things. Another round of QE that further widens Fed asset purchases in credit. Or, the market is starting to fret about the health of the credit cycle.
Macroroadmap Credit
4.) Max Policy Persists and Creates a Big Inflation Problem

Maybe policy makers just let the economy run too hot, for too long. What could go wrong?

The Dollar is undermined – look for a more serious weakening of the USD if real rates keep going negative. We would see very high negative sensitivity of the Dollar to inflation expectation differentials. See EURUSD case study below.

Big US bond sell off. If the Fed loses credibility, maybe foreign investors start selling US bonds in such size that QE is overwhelmed. The reserve status of USD has protected US Treasuries but it’s possible that this breaks. US long bonds would have very high sensitivity to 10y US inflation expectations; sensitivity to GDP growth would not be high as it wouldn’t really matter too much. The Qi portal showcases that sensitivity on a daily basis.
Macroroadmap Inf10Yrs
EURUSD – 2020 case study

* EURUSD was out of regime over the first half of 2020 – the cross simply wasn’t sensitive to macro factors.

* In June a new regime emerged; one where sensitivity to inflation differentials was key. At the time Fed QE had pushed 10y real yields to -50bp but easy monetary policies meant they were just starting a journey to -100bp.

* A range-bound EURUSD had frustrated Dollar bears over H1’20. But the Qi signal gave anyone believing Fed largesse equated to a weaker USD, the green light to increase risk. Spot EURUSD rallied from 1.12 at the start of June to 1.19 over the next 2 months.
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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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On Qi, both the Nikkei 225 & TOPIX are now 1.3 sigma (4.1%) rich to macro. Moreover, model confidence is high at 90% & 80% respectively. Political developments are important but so too are macro fundamentals.
2021 09 06 09 02 25
There are subtle differences between the regimes but both emphasise the importance of domestic reflation. Rising Japanese inflation expectations & a steeper Yen yield curve feature prominently for both indices.

A new administration may well plan more stimulus but, on this snapshot, the market has discounted a fair degree of success already.

Back-testing the efficacy of a +1.4 sigma FVG as a sell signal since 2009 produces strong results. For the Nikkei, a 62.5% hit rate & an average return of +0.5%. The equivalent numbers for the TOPIX are 66.7% & +2.1%.

The bullish case for Japanese equities can point to other drivers – strong seasonality into year-end, underweight positioning. But, on Qi, further gains will increasingly need the macro factors to do the work. The relative value expression Nikkei 225 vs S&P500 has lagged &, at ‘only’ 0.5 sigma rich to model, may offer a better trade.
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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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Wed1
The list is not exhaustive – Qi clients can assemble their own names using the Watchlist function. It is also notable that several are in micro rather than macro regimes. Idiosyncratic factors such as lower subscription growth are, for example, more important for Netflix which is the one lockdown stock rich versus its macro environment.

That said, from a macro perspective there is a pronounced skew to valuations being cheap. Whether working from home; day trading stimulus cheques, exercising or shopping at home, these stocks are not especially well valued by equity investors currently, at least in macro terms.

Mainstream media tends to focus on a series of fresh highs at the index level, but are single stocks providing a similar message about the delta variant keeping people away from offices?

For those looking to hedge their bets, note RETINA™ has a new bullish signal on Uber. It is -1.4 sigma (19%) cheap to model; moreover a divergence signal has arisen since spot has fallen 4.5% over the last 10 days, but Qi model value has increased 2.8%.
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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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Screen Shot 2021 08 31 At 092031
Qi’s model for the 5s30s US dollar swap curve is strong with confidence at 76% & rising. It suggests macro fair value is around 85.5bp. That leaves spot currently 9bp too flat.

Confirming its status as an indicator of forward growth prospects, global economic growth (Now-Casting tracking GDP for US, China, EuroZone, Japan) is the single biggest bucket. The country breakdown within that bucket is striking. The US yield curve is currently more sensitive to Chinese growth than domestic growth.

Moreover, the biggest single negative driver is China sovereign stress as measured by credit default swaps. Financial stress in China is consistent with a flatter yield curve (again, presumably reduced growth prospects).

For now, after a strong trend lower over July/August, Qi model value suggests the curve flattening is consolidating. Indeed, the flattening has overshot fundamentals to a modest degree.

While it remains in regime, this will be a vital indicator to watch for clues on how the bond market perceives the health of the global economic cycle. And, on present patterns, that means monitoring China.
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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Friday
Fed QT expectations is the red line. It clearly led the Q1 taper tantrum. Rate volatility spiked significantly in Feb / March &, on Qi, that was a 5 standard deviation move.

Since then we have seen a gradual drift lower &, the current snapshot suggests US interest rate volatility has reverted close to trend. Powell clearly has the capacity to surprise in today’s speech but, going into the event at least, there is no sign the bond vigilantes are particularly agitated.

An alternative interpretation would suggest the stage is set for the next exogenous shock that prompts a deviation from long term trend.

Unsurprisingly, the BoJ has followed its own path while the rate volatility market in Euros & Sterling suggest the ECB & BoE are largely derivatives of the Fed decision.

The inference from this picture confirms the current perception that the Fed will be first mover; the BoE not far behind, while rate vol markets think the ECB & BoJ are happy to maintain their uber accommodative stance for some time yet.
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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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A brutal two week sell-off followed the introduction of Beijing’s “common prosperity” as investors wagered that it will also mean less Chinese demand for European high-margin luxury goods. And while they have recovered some lost ground on a return of risk appetite in the second half of August, they are still looking vulnerable. Qi’s RETINA™ service tracking trend and momentum is flashing a bearish signal on the iShares Stoxx 600 Personal and Household Goods ETF (EXH7) in which luxury brands account for over 40% of the overall sector. This ETF’s biggest weightings are in the luxury goods manufacturers LVMH (19%), L’Oreal (11%), Richemont (5.6%) and Hermes (5%). Qi signals are pointing to a downtrend in this sector, and while it appears to be cheap on a valuation basis to macro, model confidence is low so it looks like trend, momentum and sentiment are in the driver’s seat for now.
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Checking the Oil Gauge:   Which Assets is Oil driving:
The new vibe coming out of China has also contributed to a sinking feeling felt by most commodity complexes in recent weeks. The uncertainty for China economic growth of “common prosperity” and sudden fear of lower demand for oil and other commodities was quick and harsh. But oil and copper have reverted to their long-term trend for the first time in some while. And if China is moving oil prices, it is important for investors to know that oil prices are moving a number of other assets since crude is currently serving as a reliable barometer for risk appetite.



Investors who are looking for oil to resume its bull trend can of course play this with the energy ETFs XLE, XOP and OIH, which rank as highly sensitive to oil prices. No surprise there. But also sensitive to the direction of oil are the unlikely bedfellows of Cannabis and Turkey which investors can sample through POTX and TUR, their respective ETFs (although they would be discouraged from sampling cannabis in Turkey). In addition, US government bonds also react to oil prices, with the sensitivity increasing sharply as you move out the yield curve. In fact, long term Treasuries (WN) are 19x more sensitive than 5-year Treasury futures (FV). European government bonds, by contrast, are largely indifferent to energy shifts.

FX investors should be aware that oil also moves currencies, and some that you might not expect. The usual petro-currencies have strong linkages to oil prices, but less intuitive is the TRY/JPY currency pair, which has the highest sensitivity at the moment. Again, Turkey features as a high beta play on risk appetite. The Aussie Dollar (AUD), which is well known to be highly influenced by commodities, oil included, is currently trading as very cheap. Indeed, against the USD, Euro, Japanese yen and Swiss franc it is nearing a one-year valuation low. AUD/USD is not only at a one-year extreme but at levels not seen since 2009. It seems a strong view on higher oil and commodity prices would want to include a play on AUD just now.

It should also be noted that the New Zealand Kiwi is looking cheap against safe havens like the Yen and Swiss Franc. “The message from the FX market is clear,” says Huw Roberts, Head of Analytics at Quant Insight. “A fair degree of bad news, both in terms of the global economic cycle and in terms of risk appetite, is in the price.”
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Bottom’s Up for a Dovish Powell:
While the backdrop for China growth expectations has wrought havoc on the European luxury sector, commodity prices and even some commodity sensitive currencies, disappointing retail and consumer confidence data in the US fomenting economic growth concerns has largely been ignored by the US retail sector. Walmart (WMT) raised their outlook for 2021 for the second time in three months while Macy’s (M) did the same and Home Depot (HD) recorded their highest quarterly revenues ever.

But only WMT investors will need to be cheering for a dovish speech from Fed Chairman Jerome Powell on August 27. That’s because, unlike M and HD, WMT is in a strong macro-regime and is trading rich to its macro model. Since Fed QE is a dominant driver of WMT’s macro model, accounting for 36% of the model’s explanatory power, a Powell speech offering more of the current everyday low-priced monetary conditions will be a good deal.

But what about the retailers not currently driven by macro factors? “Where a model is not in a macro regime, stock pickers can have greater confidence that disappointing GDP trends won’t necessarily impact revenues and earnings,” says Roberts. “But when a model is in regime, even a bottom-up investment process needs to consider their macro risks.
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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EnergyMetals
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. Crude's bounce this week coincided with Qi's measure showing the process of mean reversion to trend was complete.

Qi’s Optimise Trade Selection function enables users to stress test different scenarios – like crude oil shifts – across asset classes.
  • Which equity ETF benefits if oil resumes its bull trend? Energy ETFs XLE, XOP & OIH unsurprisingly rank as highly sensitive but so too do Cannabis ETF POTX & TUR, the iShares tracker for MSCI Turkey. Both presumably reflect crude oil as a barometer for risk appetite.
  • Which FX pair best captures further downside in crude? The usual petro-currencies all feature but the cross with the greatest sensitivity is TRYJPY. Once again Turkey appears to be the high beta risk appetite play.
  • Amongst global government bonds there is a clear US / Europe divide. The latter are largely indifferent while energy shifts are a significant driver of US futures with sensitivity increasing sharply as you move out the yield curve. WN contracts are 19x more sensitive than FV futures.
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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Unwinding RBNZ rate hikes, the delta variant, slow vaccination progress, civil unrest plus global growth concerns all form the common narrative explaining recent price action.

From a quant macro perspective, AUDUSD is the most interesting. RETINA™ has flagged a divergence signal: model fair value is flat-lining, in contrast to the recent fall in spot. Moreover, at 2.3 sigma (5.5%) cheap to model, the FVG is not only at a 1y extreme but at levels only seen once before since 2009.

AUDJPY is often seen as a barometer for global growth &, at -0.8 sigma (2.7%), may interest reflationists. Note though that macro fair value is trending lower. The FVG reflects spot moving lower quicker than model value. That contrasts with the divergence signal in AUDUSD.

Combined with the Kiwi screening as cheap versus safe havens the Yen & Swiss Franc, the message from the fx market is clear – a fair degree of bad news, both in terms of the global economic cycle & in terms of risk appetite – is in the price. That is not to say the outlook can’t deteriorate further – but, to do so, increasingly requires the macro factors to do the work.
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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SPY vs. EFA (iShares ETF tracking MSCI EAFE) spot price is in white, macro-warranted model value in red. US outperformance versus DM equities has been especially strong of late but appears to be peaking. Both spot & model value are topping out / potentially rolling over.

On this occasion the market has led. The white line has already rolled over and S&P500 is now 0.5 sigma (1.2%) cheap to DM equities on Qi models. Diversification away from US equities into the likes of Europe is already in motion. Our STOXX 600 vs S&P500 model is not in regime but a +0.5 sigma (+0.6%) Fair Value Gap points to the same conclusion.
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Same chart but this time SPY vs. EEM. The valuation perspective is the same. Spot price in white was trending higher but has lost some momentum recently.

One narrative to explain this would be the shift towards tapering from the Fed. Large parts of EM are already experiencing Central Bank monetary tightening. If Fed policy moves in that direction, one US tailwind / EM headwind is negated (or at least the contrast is less extreme).

The difference is the red line which still appears to be trending higher. Macro fair value has yet to peak & still supports US outperformance. Pick the right diversification play.
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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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US equity sector sensitivity to inflation expectations – March 31st