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Qi looks at all macro factors in z-score terms. The chart shows US inflation expectations are now 2.3 standard deviations below long term trend. EuroZone inflation expectations have lagged the move lower, but they too are now below trend (0.6 std dev).

Portal users can plot such charts using the Top 10 Macro Driver Shifts function on the home page.

The advantage of the API is a longer history. The chart above shows current levels are rare: China’s 2015 devaluation, the 2018 Powell ‘autopilot’ policy error, the first Covid lockdowns in 2020.

Expectations can clearly decline further but it is worth observing how far into a deflationary mindset markets have already fallen.

From a Qi perspective the sell-off in equity markets is actually an orderly event.

Model confidence across most global equity indices is high & stable.

S&P500 model confidence is 84% currently; the NASDAQ 83%, Nikkei 78% & Euro Stoxx 600 is 77%.

Our model confidence is a simple R-Squared statistic, capturing goodness of fit. So high numbers simply reflect macro currently has strong explanatory power across international equity markets.

The next question is what is macro fair value doing? The lines below show Qi’s macro-warranted model fair value for the S&P500 over both our Short (4mths) & Long (12mths) Term lookback periods.

The trend is clearly lower. Aggregate macro conditions continue to deteriorate.

On Qi, capitulation can be measured in two ways.

When model confidence is high & an asset is in regime, use the Fair Value Gap for a valuation signal.

Historically, one standard deviation below model has proved a good entry level to buy the dip in US equity indices. Currently S&P500 sits 0.4 std dev cheap to model.

Alternatively, when model confidence falls sharply, it is flagging that macro factors are no longer driving that asset price. Markets are experiencing a regime shift; one where macro's explanatory power diminishes, & other (often more transient) factors like positioning & sentiment come into play.

These are often more volatile trading conditions & the Qi Vol indicator shows these are periods when capitulation becomes evident.

For now, there are no signs of the latter. That leaves the valuation approach as the best roadmap.

Tactically, S&P500 is slightly cheap to model & potentially due some temporary relief. But the ingredients for a meaningful buying opportunity - cheaper valuation & a turn higher in model value - are still missing

All European sectors are in macro regimes currently &, while all are cheap, Real Estate is amongst the closest to macro-warranted fair value. Any escalation in Italian political risk & current patterns point to Real Estate as the most efficient trade from the short side.

This exercise can be repeated across different asset classes. Amongst Euro Stoxx 600 single stocks for example, Swedish equipment maker NIBE Industries is amongst the stocks most reliant on BTP spreads not blowing wider.

Most of the sensitive names are already cheap to model value. NIBE is in regime (84% model confidence) & is 0.7 std dev (9.7%) rich to model. It stands out as being particularly vulnerable to increased Italian political risk.

Which US stock is most reliant on the BTP market? Netflix

Choose your asset class.

Choose the scenario you are most focused on.

Allow Qi to find the optimal trade to capture your core view / or the hedge that negates your main tail risk.

Look at the cluster of green dots on the far left of the chart. These are the stocks with the greatest negative sensitivity - they are the most reliant on credit spreads staying tight.

Chipmakers Nvidia NVDA & Applied Materials AMAT, software firms Adobe ADBE & Salesforce CRM, but also First Republic Bank FRC, cosmetic giant Estee Lauder EL & Domino’s Pizza DPZ screen as those names most vulnerable should credit spreads re-visit the wides.

Which names lie at the other end of the spectrum? Activision Blizzard is an outlier – it has positive sensitivity to US High Yield.

Most of the focus on ATVI is on regulatory risk & its pending merger with Microsoft. But, from a macro perspective, it has the unique characteristic of being fine with wider credit spreads.

There are a handful of names – Marathon Oil MRO, T Mobile
TMUS, AT&T T, Loews L, Chubb CB – where the stock is comparatively indifferent to moves in the credit market.

Once a month screen your portfolio for sensitivity to US credit.

Then, shift allocations away from the names with the greatest credit exposure, to those with the least.

Adding in macro valuation could provide further value. Chipotle Mexican Grill CMG has the distinction of being vulnerable to wider credit spreads & it is 0.9 standard deviations (7.9%) rich to overall macro conditions.

US vol is essentially back at trend; German vol is slightly below, while EM vol is one standard deviation below trend.

None suggest equity markets are particularly fearful as we head into Jackson Hole. If you fear a hawkish speech from Powell, Qi’s snapshot suggest volatility is not historically rich.

Aside from Jackson Hole, if you fear property market issues plus Zero Covid fall-out keeps the pressure on Chinese equities, this level of vol suggests VXEEM offers a potential hedge for global equities.

Similarly, amongst DM markets, if you fear the energy / income shock is first-&-foremost a headwind for European equities, hedging via VDAX looks interesting.

This info is accessible on the Qi portal’s landing page in the "Top 10 Macro Driver Shifts" chart. API users can get a longer history to gain still greater perspective.

Gold is back being a macro play. Model confidence is now 65%, our threshold for a new regime.

The new regime is diverse but gold’s role as an inflation hedge is evident with rising positive sensitivity to global inflation expectations.

Model fair value has stopped falling but is yet to display any new highs consistent with trend reversal. But spot has rallied of late & that has created a 0.7 standard deviation (2.8%) valuation gap.

API users can back-test the efficacy of Qi FVGs as a signal. From here to +1.25 sigma looks like a coin toss – hit rates of around 50%. For potential bears, history suggests waiting for valuation gaps of +1.5 sigma where the hit rate rises to 60%.

Three quick steps – check model confidence, identify FVG, back-test the efficacy of that signal.

In short, from a macro perspective, another upside inflation surprise & this doesn’t look the optimal entry level to buy gold as an inflation hedge.

It’s not the optimal sell level either but, at these valuations, risk-reward suggests a downside surprise hurts more.

The biggest shift last week was a positive move in US GDP growth. In z-score terms, Friday’s Payrolls report pushed tracking US growth higher by over one standard deviation. The move wasn’t as big, but European & Chinese GDP also enjoyed a decent bounce.

The next biggest moves came from US & European yield curves. Both experienced a sharp flattening.

Qi uses the 5s30s curve shape as a proxy for forward growth expectations. Yield curves typically steepen in a reflationary environment, flatten as markets worry about futures levels of growth.

And there you have today’s basic macro story summed up. The US labour market remains hot. But that increases fears of more aggressive Fed rate hikes, & that is pushing the bond market to flatten (invert) the yield curve & price in a 2023 recession.

Macro box ticked; time to move on with your bottom up analysis of company fundamentals.

And as an aside, note an improvement in Italian Sovereign Confidence also features. Given Moody’s downgrade to Italy’s rating outlook late on Friday, recent complacency here could be threatened.