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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.

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:
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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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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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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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12.08.2021
Peak Infrastructure
Looking at the sector level may be too crude for stock pickers who seek to identify the individual winners & losers from the US Infrastructure deal.

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

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

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

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

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

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

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

The lasting effect is most noticeable in the first chart which shows Fed rate expectations as measured by the shape of the Euro$ futures strip. The sharp re-pricing after the Fed dot plot was a 3 standard deviation move which has yet to meaningfully mean revert. That shift in the markets’ pricing of the Fed represents a tightening of financial conditions.
Omega Nebula 11053 1920
23.06.2021
NASDAQ at the highs...
… so, for technology bulls, what is lagging?
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Casey Horner Rmowqdcqn2E Unsplash
22.06.2021
Cue Jerome Powell
Screening across all Qi’s government bond, bond futures, interest rates swaps & STIRT models for the 10 biggest Fair Value Gaps (subject to each model being in regime), produces the chart below.
Nasa Rtzw4F02Zy8 Unsplash
21.06.2021
Growth scare - leaders & laggards
Price action increasingly looks like markets are experiencing a sharp mid-cycle growth scare. Which assets are leading & lagging in this move?
Cameron Venti Xkcaeep4Ui4 Unsplash
18.06.2021
Defying gravity?
The more the correction in commodities continues, the more crude oil looks like an outlier. Why is it ignoring the move lower in the rest of the commodity complex; & is it merely lagging & therefore a potential short?
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2021 06 17 19 22 16
17.06.2021
What's new: The quarterly Qi update
Get updates on Quant Insight company growth, new solutions, fund manager insights, and media references.
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17.06.2021
Dollar squeeze? AUD not USD
Last night’s Fed surprise has once again raised the prospect of a short squeeze for the US Dollar. What’s the quantitative macro picture for G10 fx?
Dtqi
16.06.2021
Why are 10y US yields down? Two expert views
DataTrek is Wall Street's go-to commentary for differentiated & actionable investment ideas. Their daily note offers a unique blend of market insight & data-driven analysis.

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

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

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


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

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

That begs the question – is there a potential fall out for rate sensitive cyclicals like Financials & Energy? The picture is mixed.
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09.06.2021
Inflation - friend or foe?
US CPI is released tomorrow & arguably the critical question for stock pickers is whether inflation is positive for their holdings - reflecting a healthy economic upswing - or negative as it results in an early Fed tightening, or compresses margins.
Jake Weirick 09Bqxnvo7Eu Unsplash
09.06.2021
Credit
Last Wednesday the Fed announced it will unwind the corporate bonds it bought as part of its emergency policy response to last year’s initial Covid lockdowns. How has the dust settled since that announcement?
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Tuesday
08.06.2021
South Africa
The chart below shows the 10 biggest valuation gaps across all FX pairs modelled by Qi. Three of them involve the South African Rand which is rich to macro on each occasion.
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Omega Nebula 11053 1920
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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Pexels Luck Galindo 544268
07.06.2021
RETINA™ - Bullish on Energy
RETINA™ triggered several bullish signals in the energy space on Friday. At the single stock level in US, Europe & Asia. And at the sector level in US relative value space.
Pexels Sam Willis 3934512
28.05.2021
Come fly with me
The airline sector is arguably the purest expression of the re-opening trade. There are hopes next month’s G7 may reach an agreement on travel corridors & vaccination certificates which will help rescue the northern hemisphere’s summer holiday season.
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27.05.2021
Asian Tech
In mid April “A turn in Asian tech?” highlighted that ChiNext was back in regime & cheap to macro. This week Hang Seng Tech & the KWEB China Internet ETF have both crossed back above our threshold & entered new macro regimes.

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

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

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

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

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

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

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

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

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

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

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

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

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

Qi data indicate that some global equity markets benefit more from inflation than others with smaller markets in Europe such as Austria, Greece, Norway, Spain and Italy getting the biggest tailwind from rising inflation expectations. On broader macro valuation terms there is a distinct East-West divide as US and European equity markets look consistently expensive while markets cheap to macro are generally in Asia, with Japan (both the Nikkei and TOPIX indices), Indonesia, Korea, India and Emerging Markets both attractively valued and benefitting from inflation.
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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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Ft1
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.
Juskteez Vu Tirxot28Znc Unsplash
12.04.2021
US bank earnings
Financials kick off US earnings season with several blue chip names reporting this week.

All bar one of those reporting this week are in strong macro regimes.
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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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Rvdb
24.03.2021
Qi & Real Vision
Qi talk about the NASDAQ & the broader technology space. A change in factor leadership early in Feb left it the most vulnerable to a Fed Taper Tantrum style scenario. Then, early in March, it fell out of macro regime altogether. Real Vision's Jack Farley interviews Qi's Huw Roberts.
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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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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:
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Friday
The UK CPI print was a 4 standard deviation event & expectations are now as far above trend as we have seen since 2009.

This matters for several UK financial assets. For example, lower UK real yields hurt cable, while they have also been a headwind for UK equities relative performance. It’s just out of regime but the FTSE vs. Stoxx 50 model shows falling UK inflation would help the FTSE outperform.

US inflation expectations are marginally above long term trend but it’s modest. Moreover, it is the smallest deviation from trend amongst the G4; below even Japan.

They’ve rolled over slightly this week but European inflation expectations remain two standard deviations above trend. The contrast with the US is the more striking given how important inflation differentials are for EURUSD fx.

They account for a third of model explanatory power & help explain why Qi model fair value has fallen from 1.1760 to 1.1660 over the last 2 weeks. The failure of European real yields to keep pace with the bounce in US real yields has hurt the Euro.
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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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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.
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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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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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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.
2021 08 26 14 40 44
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.”
2021 08 26 14 41 03
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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Aaa
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
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At the margin, sensitivity to inflation has fallen. Back in March, a one standard deviation increase in inflation expectations saw 4 sectors benefit (outperform the S&P500) by 2% plus. Today it’s only two models that display such sensitivity.

The sector split remains broadly the same – energy & financials are the greatest beneficiaries from reflation.

The biggest change comes in macro valuations. Both XLF & KBE are modestly rich to SPY. Energy (XLE & XOP) now screen as almost one sigma cheap versus the broader market.
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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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On the Qi web platform, two tabs side-by-side enable clients to switch between the macro picture & the trend outlook. A quantitative way to align macro valuation & trend signals, giving clients the opportunity to see when an asset is:
  • rich or cheap versus macro-warranted model value.
  • on the cusp of forming a new trend.
  • the existing trend is overstretched, losing momentum & potentially reversing.
Sometimes the message from macro will conflict with the trend & momentum picture. But, when aligned, users have a powerful signal combining two of the critical dynamics driving any investment decision.
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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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That has already weighed on the Turkish Lira but it is striking that TRY features four times in the chart below which shows the ten biggest Fair Value Gaps across all Qi’s fx models. In all four, the Lira screens as rich to macro fair value.
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Both USDTRY & EURTRY are around one sigma (circa 5.0%) cheap to macro fair value. Versus safe havens the Yen & Swiss Franc, the Lira is around 0.5 sigma rich.

The former two back-test well. Buying USDTRY at a -1 sigma FVG when in regime has, since 2009, produced a 78.6% hit rate for an average return of 3.1%. The equivalent numbers for EURTRY are 70.6% & +0.5%.

President Erdogan would note that in each model, Developed Market bonds feature as a top driver & lower UST yields, Bunds yields etc are consistent with higher Dollar, Euro. Arguably though this speaks more to a quality dynamic.

China stress & crude oil are also prominent drivers. Risk off is Lira negative. Domestic Turkish monetary policy aside, the suggestion is TRY is vulnerable here if you believe markets face a deterioration in risk appetite.
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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The collapse in bond yields since March has been well documented. But, as the chart below shows, the move in 10y real rates is starting to look significant. European real yields in particular are now 3 standard deviations below trend – a level only seen on a handful of occasions over the last 10 years plus.
Image
The signal from the bond market would appear to be that inflation is indeed transitory & growth concerns are escalating. What are the implications?

Real rates do not look attractive from a long term valuation perspective. They have seen significant inflows of late but TIPS & BUNDei’s especially are not necessarily the best inflation hedges right here, right now.

Real yield differentials are the key driver of EURUSD & the move above helps explain the downward pressure on the Euro over May-July. Euro bears need to be on alert for any potential mean reversion.

Screening European equities for sensitivity to EUR real rates reveals it only a modest driver at both the index & sector level. At the margin, peripheral rather than core indices are the most sensitive; while Travel & Leisure plus Banks are the sectors that want real rates higher.
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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FX markets will be a popular way to play this & interest rate differentials could emerge as a key driver of currencies. Except rate differentials aren’t always the primary driver of FX. The first step is to quantify where & when they are the dominant engine for FX markets.
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Qi’s G10 fx models include rate differentials at three points along the yield curve. 1y1y & 2y2y differentials are pure plays on relative Central Bank rate expectations.

The third is the 5y5y cross market spread. This captures market perceptions of the terminal rate in each country.

In the chart, red (faded) dots capture models that are in (outside) a macro regime. The y-axis shows where the interest rate differential bucket ranks as a driver versus the other variables in the model’s factor set.

If a model is in regime & rate differentials are the number one driver, that FX cross represents an efficient trading expression for any views on the respective Central Banks’ policy stance.

A simple blanket approach does not work. The RBNZ is perceived as hawkish but while NZDJPY & NZDCHF are sensitive to rate differentials, NZDUSD & NZDCAD are not in regime.

Neither is USDCAD. EURUSD is all about real yields not nominal rate differentials. Respective yield curve shape is more important than rate differentials for USDJPY.

Having identified where rates matter, tomorrow we will add a valuation overlay into the mix.
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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The Qi framework help investors maintain a real-time objective picture of Beijing’s tech crackdown. Optimise Trade Selection allows users to run empirical stress tests. So, for example, if you think a Yuan devaluation is a potential risk scenario, managers can screen their asset class for sensitivity to USDCNH.

Watchlists are useful ways to monitor how different asset classes are faring under the enhanced regulatory regime in China. This “China Multi-Asset” watchlist is now available to all Qi subscribers. Thus far it is worth noting:
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  • Chinese equity indices are all around two sigma cheap to their macro environments. When regulatory risk is the key driver of markets, it might be expected to see low macro model confidence. However, while Shanghai Comp has just 27% R-Squared, every other Chinese equity market – whether index, future or tracking ETF – is in a macro regime.
  • In other areas though the sell-off is less extreme. The S&P500 is ‘only’ 3.4% rich versus Chinese large caps on our SPY vs FXI model. That’s just a 0.5 standard deviation move.
  • KWEB - the China Internet ETF - is approaching one sigma cheap to macro on an outright basis; but is only half a sigma cheap when looking at the relative value versus either US internet (FDN) or US tech more broadly (NASDAQ)
  • Chinese small caps - ECNS is the iShares ETF tracking MSCI’s China small caps index – have not suffered as much. Model confidence is just 51% but the FVG is ‘only’ 0.7 sigma, 6.9%. One to watch if you fear broader contagion?
  • Note the sole Chinese asset with a rich macro valuation is REMX – the VanEck Rare Earth ETF. Ultimately, this is not the end in the secular growth of technology; just about how the data is used, where the companies list & how the industry is regulated.
  • In Fixed Income, Chinese yields have been on a multi-month downtrend. 2y & 5y yield models are not in regime. The 10y is & shows yields as 16bp below macro-warranted model value.
  • Credit is taking a beating. Whether China specific – KCCB is the KraneShares China High Yield ETF & is 1.6% cheap to macro. Or a broader Asian view. China has a 44% weight in the iShares Asia High Yield ETF AHYG. EverGrande, for example, was the second biggest holding as of end-July.
  • Finally, note USDCNH. It is in a strong macro regime & the Dollar is now 1.4% rich versus the Yuan. That’s modest but still the highest FVG since late April. Memories of the 2015/16 devaluation which effectively exported deflation to the rest of the world will be front-&-centre for many investors.
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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The models shown below are not exhaustive but includes a number of this week’s benchmark releases across big tech & cyclicals. The chart shows which are in macro regimes versus those that are driven by idiosyncratic risks. And, for the former, whether they are rich or cheap relative to their macro environment.
Monday
In terms of macro’s importance there is a clear skew: most tech stocks lie to the left of the 65% model confidence threshold. Company fundamentals matter more than macro currently. Most of the stocks in macro regimes are industrial names.

In valuation terms perhaps the most striking feature is how close to fair model value most stocks are. Caterpillar is amongst the cheapest but the FVG is only 0.25 sigma, 3.2% below model. Its regime is mixed but the manufacturer is especially reliant on a steeper yield curve.

Boeing is also modestly cheap but this time tight credit spreads, rising crude oil prices & rising US real rates are more important for bulls.

General Dynamics is the richest of those models in regime. At 0.5 sigma, 4.5% the FVG is near 3month highs. Sensitivity to Fed QE is high suggesting it’s a stock that needs to watch event risk like this week’s FOMC & next month’s Jackson Hole.
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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Users can now interact with RETINA™ and fire requests to the trade bot @qi-trade-bot asking for an updated trend / momentum chart, or the latest valuation picture. Simply ask the bot to “plot momentum” or “plot valuation” for an automatically generated updated chart.

Plot Momentum
  • USDJPY is still in an uptrend but the short term trend indicator is rolling over suggests momentum is waning.
R1
Plot Valuation
  • The spot price of the QQQ / SPY ratio is slightly rich versus Qi macro model value.
R2
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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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Now, for the first time since October 2020, Qi’s Cross Asset Absorption Ratio shows a sharp rise from a very low level. That suggests financial markets are becoming less diverse – across asset classes & across geographies, markets are being driven by a single factor (probably global Central Bank policy stimulus). Such concentration risk often provides an early warning of a ‘risk off’ event.
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Qi’s Vol Indicator, another measure that looks at macro’s ability to explain the variance of equity, bond & FX markets, is also rising. Again, when macro fundamentals can’t explain the price action of global capital markets, the risk is markets are at the mercy of more volatile drivers such as positioning & sentiment.

The Vol Indicator is not yet at levels that have historically been consistent with significant VIX spikes, but it is moving towards that territory. Moreover, when combined with the other two signals, there are sufficient alarm bells ringing. There are building signs that risky assets could face turbulence ahead.
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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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Of the 24 US companies releasing this week, over half are in macro regimes. In the chart below, the 9 models to the left of the vertical bound are in micro regimes. It’s business-as-usual for stock pickers who can focus on idiosyncratic earnings. However, all those models to the right of the vertical bound are being driven by macro factors. Equity investors focused exclusively on company news will miss vital market-moving information.
Monday
As always, the start of earning season is dominated by financials & several of this week’s reporting big banks share some common macro characteristics. All are modestly rich to model. JPM & Goldman Sachs are the most expensive, both at +0.5 sigma to macro fair value; amongst the bulge bracket Citi, at +0.2 sigma vs model, is the least expensive.

All the banks want rising inflation, rising real rates & steeper yield curves. Interestingly, Delta Air Lines wants the same macro environment &, given it is at model fair value, what these critical drivers do next will be hugely important for the DAL stock price.

The days ahead will see a wealth of stock specific analysis but, as “The impossibility of a ‘bottom up’ equity strategy” explains, “however you pick [your] stocks, you usually end up with something that is largely driven by macro factors”. It’s earnings season, but macro still matters.
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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Ppp
Read the full article here
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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The chart below shows the IBEX 35 vs. Stoxx 600 Fair Value Gap; the FTSE MIB vs. Euro Stoxx 600 model is slightly less extreme but largely the same. The fall in the spot price of the RV ratio is happening while macro model value remains unchanged.
Tuesday
Both models are in regime & show FTSE MIB / IBEX 35 as high beta plays on a European recovery. Rising economic growth/inflation expectations, steeper yield curves, low risk aversion & tight credit spreads are all consistent with Italian / Spanish outperformance.

Covid - the impact of the Delta variant on the European tourism industry - could be one factor at play. Increasingly though it appears as though the IBEX & FTSE MIB have priced at least some of the bad news in terms of the economic fall-out.

Maybe tonight’s Euro 2020 semi-final will provide a sentiment bounce for at least one of the southern European equity markets.
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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This has been a growing theme on Qi as well with China-related factors rising in importance.

The charts take six global benchmark assets - S&P500, Euro Stoxx 600, 10y US Treasury & 10y Bund yields, plus EURUSD & USDJPY - & shows the ranking of Chinese sovereign CDS as a driver amongst the entire model factor set.

The higher the ranking, the more important this measure of Chinese sovereign stress is for that asset. Sovereign CDS can be interpreted as insurance against default risk. Wider (narrower) spreads implies there is greater (less) demand for protection against a Chinese credit event.
Wed2
China stress is a top 5 driver for 10y US Treasuries & Bunds. However, it is US rates which really stand out. It is the second biggest driver in the entire factor set - second only to crude oil. A one standard deviation widening in Chinese CDS currently equates to a 10bp decline in UST yields.

US & European equity benchmarks were highly sensitive to China in May but that has fallen in June. Note though model confidence for the S&P500 is now 62% - it has fallen out of regime. Declining sensitivity could reflect a broader shift away from macro rather than the driver itself.
Wed1
China stress is the second biggest driver of USDJPY. The relationship is positive – turbulence in China is consistent with higher USDJPY. That paints a mixed picture since USDJPY’s sensitivity to traditional risk aversion metrics (VIX etc) have recently re-established a negative relationship. After months early in 2021 when spikes in VIX benefitted the Dollar, they now favour the Yen once again.
Wed3
This demonstrates that not all ‘risk off’ episodes are created equal. The catalyst for a deterioration in risk appetite can vary. Choosing the right hedge first requires the ability to recognise the source of ‘risk off’; but then to know which assets are sensitive to that particular move.
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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RETINA™ is flashing a bullish momentum signal on EM bonds.EMB, the iShares ETF tracking JPM’s hard currency EM bond index, is potentially carving out a new uptrend.
Thursday2
Both ST & LT z-scores are positive denoting an uptrend; the slope is turning increasingly positive suggesting momentum is picking up. Hence the 3 bar conviction level. RETINA™ operates on a 0-4 bar conviction scale; calibrating where macro valuation & trend/momentum dynamics are aligned, or not. One is average conviction; four is full conviction.

This is a 3-bar signal because macro valuation is neutral. The Fair Value Gap is +0.2 sigma (+0.4%).

Note a strong macro regime (83% model confidence) & Central Bank QE Expectations account for almost half of the model. EMB needs ongoing QE to perform.

If you believe the Fed & other CBs keep bond volatility low / prevent another taper tantrum, then the momentum outlook for EM Bonds looks encouraging.
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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Monday
This is not a valuation signal. Having spent most of 2021 cheap to macro, the recent bounce has closed the Fair Value Gap. The Qi model for the Global X ETF that tracks MSCI’s China Information Technology sector is now essentially at macro fair value.

With the valuation picture neutral - rather than opposing momentum - that means RETINA™ assigns a 3-bar conviction level to the signal. Four bar signals are the highest conviction trades.

The next Qi upgrade due in early July will include the addition of the RETINA™ trend / momentum charts to each model page. Clients will be able to see all Qi’s traditional macro analysis plus the trend charts for all models across every asset class.

In the case of Chinese technology, investors will need to maintain a close eye on Beijing’s regulatory push. However, subscribers will be able to align macro fundamentals with momentum dynamics, & monitor both in real-time. Signal from noise™
Omega Nebula 11053 1920
23.06.2021
NASDAQ at the highs...
… so, for technology bulls, what is lagging?
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On Qi, the standout is the KraneShares China Internet ETF KWEB which is 1.4 sigma (19%) cheap to macro. As ever with tech, antitrust legislation is a clear risk; & probably explains why, at 63%, Qi’s model is just below the threshold for a macro regime.

That means valuation signals come with a health warning. Still, the valuation gap is close to 1y lows & the contrast with both the NASDAQ & ChiNext is stark. It has also lagged the recovery experienced by other tech favourites.
Wed1
At the index level, while NASDAQ & ChiNext flirt with new highs, in macro terms Hang Seng Tech looks more like KWEB. That may speak to micro factors as the two rival exchanges compete but, at 8% cheap to macro model value, the contrast is again striking.

Another popular tech vehicle are the ARK Invest funds. Qi has models for both ARK Innovation ARKK & ARK Genomic Revolution ARKG. At the lows in mid-May, they were 28% & 24% cheap to model respectively.

Both have now caught up & trade in line with model fair value. Note also both are back in macro regimes. Even funds focused exclusively on disruptive technology are not immune to their macro environment.
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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Usual health warning with commodities & their propensity for supply/demand shocks. However, at 86%, Qi’s model confidence suggests traditional macro factors are doing a good job of explaining the price action in Brent & WTI.
Friday
Crude is close to macro fair value. Spot price (white) & model value (red) in the chart above track each other closely. Spot is 3.9% above but that is a negligible +0.25 in standard deviation terms. Moreover, RETINA™ has been unambiguously bullish on crude from a trend / momentum perspective.

The macro profile displays a desire for healthy Chinese economic growth & no sovereign stress in China or Europe. The other big driver is bond yields - the top 3 positive drivers are 10y US Treasury & Bund yields, plus 10y US real rates. It speaks to a healthy demand backdrop / risk on environment.

Together, they identify one scenario bears should monitor. Slower Chinese credit impulse that weighs on economic growth & credit quality, & potentially fuels a flight-to-quality trade in DM government bonds, is a toxic combination for crude oil on current patterns.
2021 06 17 19 22 16
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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Growth, product development and unique trading signals

Recently we've opened a US office responding to rapid customer growth. With Qi customers evaluating
the effects of reflation and growth expectations this year, we see particular interest in Relative Value opportunities at the sector or index level, using macro valuation plus price momentum to improve tactical asset allocation, and adding macro screens to
enhance stock selection.
Hot off the press is Qi's new RETINA service providing a pipeline of actionable trading signals. I hope the following client insights and product updates are useful and look forward to hearing from you.

Mahmood Noorani, CEO and Co-Founder

Download the full 'What's new' article below
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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  • 10-year Treasury yields have been bucking consensus ever since the start of Q2 2021, moving lower even as inflation chatter has only grown louder. History and current macro drivers explain why this is happening.
  • DataTrek Research believes Treasury prices anchor on long-run historical inflation trends. Convincing this market that the next 10 years will be different from the last decade could take a long time. It took 25 years, for example, for Treasuries to fully reset after the 1970s.
  • Quant Insight’s proprietary data analysis shows oil prices need to rise materially – and quickly – from here to push yields higher. And even if US equity markets are calm just now, there is actually a relationship between credit concerns in other markets and declining Treasury yields.
  • Bottom line: 10-year Treasuries don’t trade exclusively on current US inflation data. They never have. To predict their next move, you need to look at a wide range of other macro drivers.
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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Wed1
For those unable to invest in Fixed Income securities, the traditional inflation hedge lies in the commodity complex. That trade can take many shapes – spot commodities, commodity currencies, ETFs, or resource stocks. Many have rallied aggressively in 2021 but, more recently, several - like copper - have experienced a sharp pullback.

Relative to the macro environment, which offers the best trade expression currently? Qi’s “Commodity Super Cycle” watchlist is a curated list of potential commodity related plays.
  • The cheapest model is Chilean copper miner Antofagasta. The May sell-off has taken it 1.6 sigma (31%) below macro fair value. But it fell out of a macro regime in April & any FVG comes with a health warning.
  • Not as extreme, but the Global X Copper Miners ETF COPX displays a similar profile – cheap to macro but out of regime.
  • Amongst the single stocks, Korean steel giant POSCO is notable - in a macro regime & 0.6 sigma or 11% cheap to model.
  • Spot commodities are typically rich to model. However, valuation gaps are modest and while Gold & WTI are in regime, Silver & Natural Gas are not currently explained by macro.
  • In FX, valuations are mixed but the one consistent is model confidence – not a single commodity cross is in a macro regime. On current patterns, commodity currencies have divorced themselves from macro fundamentals.
Wed4
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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Mon2
None have yet to cross the 65% threshold denoting a new macro regime &, as such, their valuation signals come with a health warning. However, the valuation picture is consistent – the BRL looks rich to model.

Looking at the crosses with the biggest jumps in model confidence a clear pattern emerges. AUDBRL, CHFBRL, BRLJPY, BRLCLP have some differences but share the fact that risk aversion is the single biggest driver. Even versus the Chilean Peso, the current pattern shows the Real as the high beta asset that needs VIX & other measures of risk aversion to stay low.

Combining valuations with the key driver of this new regime, suggest the Real could be an efficient vehicle for any risk off scare.

Indeed, RETINA™ has triggered a bearish momentum signal on BRLCLP. The recent uptrend looks overbought & is showing signs of rolling over.
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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Thursday
The chart above shows XLE spot price (white) versus macro fair value (red). The recent divergence has opened up a +0.8 sigma (+12.4%) Fair Value Gap. But while macro valuation is rich to model, RETINA™ continues to show the uptrend is in good health. Equally, crude oil - unsurprisingly the biggest single macro driver - retains good momentum.

XLF is just 0.3 sigma from model, i.e. in line with macro fair value. The momentum picture, however, is more mixed. Relative to XLE, the uptrend looks less secure.

Both XLE & XLF model value have started to roll over. It is modest thus far, but worth watching. Today’s event risk could be the catalyst for the next big move. Qi users can align macro fundamentals & trend/momentum dynamics in real time. Signal from noise™
Jake Weirick 09Bqxnvo7Eu Unsplash
09.06.2021
Credit
Last Wednesday the Fed announced it will unwind the corporate bonds it bought as part of its emergency policy response to last year’s initial Covid lockdowns. How has the dust settled since that announcement?
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Qi's credit models are in strong macro regimes & valued in line with macro fundamentals. Our Credit Watchlist shows all bar two (EM High Yield & US Municipals) have high model confidence; & all are essentially within 0.5 sigma of macro-warranted model value.

High Yield spreads in both US & Europe are especially notable – macro explanatory power of 90% plus & almost exactly in line with fair value.

No valuation edge in credit itself then, but what about other asset classes?

The Fed’s aggressive policy response in March 2020 resulted in a significant rise in credit’s importance as a factor for risky assets. Given its role as a primary driver, a core Qi theme throughout last year was that, as long as the Fed back-stopped credit markets, any pullback in US equities was a dip buying opportunity. Is the opposite true now?
Image 32
The chart above shows the S&P500’s independent sensitivity to US High Yield spreads. In Q4’20, a one standard deviation tightening in US HY spreads (in isolation, every other factor held constant), was consistent with a 1% rally in SPX.

The equivalent move today is just a 0.2% gain. On this metric, equities still want tight credit spreads but the sensitivity is a fifth of what it was. Last week’s announcement isn’t the huge game changer it would have been in 2020.
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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AUDZAR is especially notable. Prior to Friday’s US Payrolls, the FVG was at a 1y low. Even with the recent bounce in spot, the valuation gap stands at -1.1 sigma (-4.2%). Back-testing a buy the dip strategy at a FVG of -1.1. sigma since 2009 produces a 79% hit rate & +1.8% average return.
Tuesday3
While the valuation gaps are less extreme, the Rand is expensive to model on USDZAR, CADZAR & EURZAR as well. Of those, CADZAR’s current -0.7 sigma FVG back tests the best with a 63% hit rate & +0.4% average return.

The macro profile is similar across all 4 crosses. Risk off (wider credit spreads, higher VIX) plus weaker domestic growth (Now-Casting tracking GDP growth for SA) dominate the regime & are Rand negative. Put another way, on current FVGs, the Rand has priced a fair amount of good news on risk appetite & growth.

It is also noticeable how important the Rand is for South African equities currently. The sensitivity of the iShares ETF tracking MSCI South Africa to Trade Weighted ZAR has been rising strongly since mid March, & the currency is now the biggest positive driver.EZA is very close to macro fair value so equity investors need to monitor fx shifts.