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Macro Markets Insights
Make informed investment decisions with unique insights
 
Topical observations from the Qi macro lens. Build your investment roadmap with the best-in-class quantitative analysis and global data.
Oil Markets
04.09.2023
Crude oil at 10mth highs
- what does it mean for you?
Crude's rally is starting to attract attention. Most equity analysis immediately focuses on XLE, but how are managers supposed to marry a macro story like energy with their fundamental stock picks?

Different parts of the equity market have very different relationships with crude oil. It is essential these are understood.

The chart below takes a look across global equity indices in developed and emerging markets and maps sensitivity to WTI. The y-axis shows the percentage gain/loss in each equity market for a one standard deviation shift in WTI in isolation.
See more
Goldilocks Or Bust
30.08.2023
Goldilocks or Bust
The tug of war between Goldilocks or Bust remains the dominant narrative for global investors. This week Goldilocks has enjoyed a boost but, away from short term news flow, what's the cross asset picture of macro conditions and what's being priced?

Credit looks Goldilocks biggest cheerleader. And therefore most vulnerable if Payrolls print soft and recession fears escalate.

European sector rotation plays offer opportunities for hard and soft landing proponents alike.
See more
Brian Matangelo W Lc86 Nvia Unsplash
15.08.2023
China sales exposure
Another set of poor Chinese economic data. Another underwhelming policy response.

From the market's perspective the biggest reaction came in bonds (yields at 2020 lows) and FX (Yuan hits the weakest level to the Dollar in 9 months).

For equity markets it remains Goldilocks or bust. The weak economic data is, to varying degrees, reflected in the price. The hope for a big fiscal package to stimulate demand remains bubbling under the surface.

So, in the meantime, we're left measuring what is discounted at these levels.

* Which Western companies with heavy sales exposure to China are rich or cheap?

* Which Asian equity indices are being dragged down by China; which can benefit?
See more
Hans Eiskonen Wn57Csq7Vzi Unsplash
08.08.2023
Beware a summer vol spike
VIX has been below 20 for four months now, but there are tentative signs that equity volatility may be on the rise. Seasonal patterns certainly point that way.

Given the latest positional surveys suggest CTAs and vol targeting strategies are running long risk, it is imperative equity managers have a good handle on which of their holdings are most vulnerable to "risk off".
See more
03.08.2023
The beta chase has likely run it's course
The S&P500 is up +20% for the year and the 12mth fwd PE multiple is back at 20x - expanding aggressively as CPI / hard landing fears are priced out.

At 20x we are at the 90th percentile of this valuation measure since 2003, notable when the risk free rate is 5.5%.

Read our analysis on Earnings expectations, Growth expectations, Financial conditions and Risk appetite.
See more
01.08.2023
White Paper: Introducing Macro Factors
Understanding and applying the importance of macro factors
See more
Aaron Burden Nxt5Prob 7U Unsplash
01.08.2023
Don't fight the US consumer
Amongst all this week's earnings, a key focus will be parsing company reports for clues on the health of the US consumer. Recent macro data (GDP, PCE, consumer confidence) have all suggested the consumer is in rude health.

Will that picture be endorsed by anecdotes from the retailers, hotels, cruise liners, casinos and car hire companies who report this week?

Given prevailing macro conditions, which consumer stocks offer best value for an ongoing catch-up trade for equity bulls?

Conversely, for the bears where are the tail risks which threaten to upend the party?
See more
Daoudi Aissa Pe1Ol9Olc4O Unsplash
26.07.2023
Capitulation!
In the absence of a recession, bears looking for equity downside have been forced to revise their forecasts higher.

Sometimes, such widespread capitulation has some tactical signal power - reflecting the idea most shorts have now covered and positioning is cleaner.

We flag now because Qi's new economic growth basket gives equity investors a way to use liquid US single stocks to track now-casting's US GDP.

That basket, now available on Bloomberg, has some interesting messages when compared with cyclical indicators like Economic Data surprise indices and ISM new order - inventories.
See more
Raychel Sanner Mnnxmvs4Cqo Unsplash
19.07.2023
Watching credit
Credit spreads continue to grind tighter and provide sponsorship for the equity rally.

A rally that is still being led by the Magnificent Seven but which has recently shown signs of broadening out. Various metrics show cash is coming in from the side-lines, shorts are being covered, speculative/high beta stocks are performing strongly.

That begs the question how important is the role of easy credit in helping this rally continue and drag up the lower quality parts of the equity market?

On Qi, credit spreads are the second biggest driver of the S&P500 after interest rate volatility. But for the Russell 2000 that pattern is inverted and credit spread are the biggest single macro factor.

The Russell (below) also screens as twice as rich to macro as the S&P500. R2k is now over one standard deviation above macro-warranted model value (versus a +0.6 std dev FVG for SPX).
See more
Weightless 60632
10.07.2023
Market is poised as we enter high summer
US Equity Indices have moved up strongly since bottoming in Oct (with a wobble in March) driven by credit and liquidity. The rally has been driven by a re-rating of some sectors, principally technology where key stocks are now trading back towards the top of their multiples, with EPS expectations still drifting down for the overall market.

The Market Story (Animal spirits) has been lifted by the advent of GPT4/AI and the impact on US manufacturing of the Inflation Reduction Act inspiring optimism for productivity and growth

Qi analysis suggests stalling model momentum for the SPX, driven by QT expectations, the most important factor, picking up.
See more
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Oil Markets
04.09.2023
Crude oil at 10mth highs
- what does it mean for you?
Crude's rally is starting to attract attention. Most equity analysis immediately focuses on XLE, but how are managers supposed to marry a macro story like energy with their fundamental stock picks?

Different parts of the equity market have very different relationships with crude oil. It is essential these are understood.

The chart below takes a look across global equity indices in developed and emerging markets and maps sensitivity to WTI. The y-axis shows the percentage gain/loss in each equity market for a one standard deviation shift in WTI in isolation.
See more
There is a clear geographical split with the Americas the clear beneficiary of higher oil prices. NASDAQ, S&P500 and Brazil's IBOV have all seen sensitivity to crude rise sharply. To a lesser extent TOPIX also benefits.
Wti
Some may query those results, especially Japan as a net oil importer. For now, we think this reflects oil's role as a proxy for risk appetite. Some of the gains in crude come from tight supply conditions; but, from the demand side, there are growing hopes global growth will achieve a soft landing.

But if current patterns show US equities enjoying a Goldilocks relationship with energy markets, the same cannot be said for Europe or China. Neither the DAX or CAC enjoy the same positive sensitivity.

The Shanghai Composite, where macro explains 75% of price action, has recently seen sensitivity flip into negative territory - higher oil is threatening to become a drag.

Moving away from indices to single names, stock pickers can use Qi's Optimise Trade Selection function to screen their holdings for sensitivity to crude oil.

Below we show the results from screening across the S&P500 to find the winners and losers from this energy move.
Wtiusstockben
The beneficiaries include a bias to consumer cyclical names - Tesla, Amazon, Carnival, Live Nation.

Carnival stands out. It enjoys a 3.1% gain when crude rallies by one standard deviation. And it screens as cheap to aggregate macro conditions.

Once again, the current pattern is Goldilocks - higher oil is not (yet) a tax on consumption, rather a sign of healthy risk appetite.

The five most vulnerable US stocks are a more eclectic mix. Unlike the retailers cited above, ETSY and Estee Lauder don't enjoy the same positive relationship with energy markets.
Wtiusstockssuffer
Economic orthodoxy states rising crude oil acts as a tax on consumers and businesses. But US exceptionalism means that, for some at least, bad news can be seen as good news. Put another way, crude has yet to rise to that trigger point where it becomes a drag and, for now, Goldilocks trumps Bust.

The equivalent search across Euro Stoxx 600 stocks flips the script back to more conventional results and again highlights how, in Europe, bad news is bad news.

German power generator Uniper screens as the biggest beneficiary from rising crude oil; and it is slightly cheap to macro conditions.

Meanwhile fashion retailer Zalando stands out as amongst the companies that suffers from higher oil and is slightly rich to Qi model fair value.

Measure your own holdings to get visibility on whether your portfolio see's bad news as a headwind or a tailwind.
Goldilocks Or Bust
30.08.2023
Goldilocks or Bust
The tug of war between Goldilocks or Bust remains the dominant narrative for global investors. This week Goldilocks has enjoyed a boost but, away from short term news flow, what's the cross asset picture of macro conditions and what's being priced?

Credit looks Goldilocks biggest cheerleader. And therefore most vulnerable if Payrolls print soft and recession fears escalate.

European sector rotation plays offer opportunities for hard and soft landing proponents alike.
See more
The soft landing narrative has had good news this week - signs of a softening in the robust US labour market; no fiscal bazooka but incremental policy easing in China; bond yields reverse lower pulling the Dollar down.

But the dilemma facing investors remains sharply unchanged - Goldilocks or Bust is alive and well. And it's at times like these that all market participants, not just contrarians, should consider their tail risks. While Goldilocks prevails today, what are markets are pricing in terms of recession risk?

The Watchlist below is not exhaustive but includes a number of securities across asset classes that would typically be viewed as cyclical in nature. So which markets are pricing the Goldilocks scenario, and which are pricing elevated fears of a hard landing?
Recession Watch
  • The clear standout is credit. Whether US or European, whether Investment Grade or High Yield, spreads screen as too tight on Qi's models. The Fair Value Gaps are modest (around half a standard deviation only) but macro explanatory power is high and the message is unequivocal - credit is not priced for any uptick in recession fears.Our US Investment Grade credit spread model is shown below.
  • Elsewhere in Fixed Income, government bond yields - both nominal & breakevens - are in line with macro conditions.
  • The equity picture is mixed, but overall global equities are largely bang in line with aggregate macro conditions. The biggest valuation outliers both appear in Europe.
  • If you're team Goldilocks, European Autos look a comparatively cheap cyclical play versus their defensive Health Care peers - SXDP is nearly 6.0% rich to SXAP.
  • If you fear a recession, European Banks are 2.6% rich to Utilities SX7P vs. SX6P.
  • US equity indices are all modestly cheap to overall macro conditions but IWM is the only one with any meaningful valuation gap. Given the higher proportion of unprofitable companies more sensitive to interest rates, it is no surprise to see the Russell 2000 screens as 2.7% below macro-warranted fair value. Even more noticeable, macro momentum is turning up for SPY, QQQ and IWM.
  • The FX market seems biased to trading defensively with the Dollar somewhat rich; most notably USDSEK which we use as a proxy for high beta Europe & market fears around the housing sector.
Us Ig
Again, this is not a definitive list of cyclical assets. Our Recession Watch Watchlist is available off-the-shelf, or create your own customised list in the Qi portal and, with one easy eyeball, you have the ability to quickly monitor where markets are pricing Goldilocks and where a potential Bust is gaining traction.

#macromadeeasy
Brian Matangelo W Lc86 Nvia Unsplash
15.08.2023
China sales exposure
Another set of poor Chinese economic data. Another underwhelming policy response.

From the market's perspective the biggest reaction came in bonds (yields at 2020 lows) and FX (Yuan hits the weakest level to the Dollar in 9 months).

For equity markets it remains Goldilocks or bust. The weak economic data is, to varying degrees, reflected in the price. The hope for a big fiscal package to stimulate demand remains bubbling under the surface.

So, in the meantime, we're left measuring what is discounted at these levels.

* Which Western companies with heavy sales exposure to China are rich or cheap?

* Which Asian equity indices are being dragged down by China; which can benefit?
See more
Hans Eiskonen Wn57Csq7Vzi Unsplash
08.08.2023
Beware a summer vol spike
VIX has been below 20 for four months now, but there are tentative signs that equity volatility may be on the rise. Seasonal patterns certainly point that way.

Given the latest positional surveys suggest CTAs and vol targeting strategies are running long risk, it is imperative equity managers have a good handle on which of their holdings are most vulnerable to "risk off".
See more
03.08.2023
The beta chase has likely run it's course
The S&P500 is up +20% for the year and the 12mth fwd PE multiple is back at 20x - expanding aggressively as CPI / hard landing fears are priced out.

At 20x we are at the 90th percentile of this valuation measure since 2003, notable when the risk free rate is 5.5%.

Read our analysis on Earnings expectations, Growth expectations, Financial conditions and Risk appetite.
See more
01.08.2023
White Paper: Introducing Macro Factors
Understanding and applying the importance of macro factors
See more
Aaron Burden Nxt5Prob 7U Unsplash
01.08.2023
Don't fight the US consumer
Amongst all this week's earnings, a key focus will be parsing company reports for clues on the health of the US consumer. Recent macro data (GDP, PCE, consumer confidence) have all suggested the consumer is in rude health.

Will that picture be endorsed by anecdotes from the retailers, hotels, cruise liners, casinos and car hire companies who report this week?

Given prevailing macro conditions, which consumer stocks offer best value for an ongoing catch-up trade for equity bulls?

Conversely, for the bears where are the tail risks which threaten to upend the party?
See more
Daoudi Aissa Pe1Ol9Olc4O Unsplash
26.07.2023
Capitulation!
In the absence of a recession, bears looking for equity downside have been forced to revise their forecasts higher.

Sometimes, such widespread capitulation has some tactical signal power - reflecting the idea most shorts have now covered and positioning is cleaner.

We flag now because Qi's new economic growth basket gives equity investors a way to use liquid US single stocks to track now-casting's US GDP.

That basket, now available on Bloomberg, has some interesting messages when compared with cyclical indicators like Economic Data surprise indices and ISM new order - inventories.
See more
Raychel Sanner Mnnxmvs4Cqo Unsplash
19.07.2023
Watching credit
Credit spreads continue to grind tighter and provide sponsorship for the equity rally.

A rally that is still being led by the Magnificent Seven but which has recently shown signs of broadening out. Various metrics show cash is coming in from the side-lines, shorts are being covered, speculative/high beta stocks are performing strongly.

That begs the question how important is the role of easy credit in helping this rally continue and drag up the lower quality parts of the equity market?

On Qi, credit spreads are the second biggest driver of the S&P500 after interest rate volatility. But for the Russell 2000 that pattern is inverted and credit spread are the biggest single macro factor.

The Russell (below) also screens as twice as rich to macro as the S&P500. R2k is now over one standard deviation above macro-warranted model value (versus a +0.6 std dev FVG for SPX).
See more
Watching Credit
We can add that to a list that includes ARKK and the MEME ETFs: both +1.5 std dev rich.

What about credit spreads themselves? US High Yield spreads are in a strong macro regime - model confidence is 86% and incredibly stable.

They now screen as 0.5 std dev or 18bp too tight versus prevailing macro conditions. Not a huge Valuation Gap but towards the tight end of recent ranges.
Watching Credit2
For now though macro momentum is supportive. Model value is trending tighter. Model value has moved from 483bp at the start of June to 437bp now. Until this turns wider, any FVG simply flags a market that is running ahead of fundamentals. Not an imminent reversal.

However, to the extent that credit spreads are fairly fully priced, that does in turn imply it's going to be increasingly hard for low quality equity plays to keep performing.

This is not yet a signal even with extended FVGs because of macro momentum. It is, however, an indicator that the risk-reward trade-off is becoming harder to chase the catch-up trade in high beta.
Image 1
The Qi US High Yield credit basket is a long/short pair with strong tracking and less onerous carry dynamics. It has fallen 11% since early May and this HY spread tightening move. It is trackable on Bloomberg and tradeable via our partner Investment Banks.
Weightless 60632
10.07.2023
Market is poised as we enter high summer
US Equity Indices have moved up strongly since bottoming in Oct (with a wobble in March) driven by credit and liquidity. The rally has been driven by a re-rating of some sectors, principally technology where key stocks are now trading back towards the top of their multiples, with EPS expectations still drifting down for the overall market.

The Market Story (Animal spirits) has been lifted by the advent of GPT4/AI and the impact on US manufacturing of the Inflation Reduction Act inspiring optimism for productivity and growth

Qi analysis suggests stalling model momentum for the SPX, driven by QT expectations, the most important factor, picking up.
See more
Spx1Spx2
Looking broadly at global markets and central bank assets we can see a gap developing in this relationship that may require a catching down by risk markets:
Spx3
Market analysts are quite confused about the forward path and a sharp move down would be exacerbated by positioning also:
Spx4Spx5
Finally, FED Rate expectations have also moved to higher in the coming years – “Higher for Longer”. Though the market has taken this well so far, there is vulnerability in valuations as the discount rate has gone up
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