26.04.2023
Hiding in Consumer Staples?
Thus far, company earnings appear to be beating downbeat expectations. Since the October low in US equity markets, every sector has seen forward earnings expectations revised lower. Bar one - consumer staples.
If the equity market is on watch for an earnings recession, then Staples are the one area for guarded optimism. Analysts believe they can maintain performance.
Makes sense. XLP's three biggest holdings are Procter & Gamble (14.5%), Pepsi (10.2%) and Coca-Cola (9.7%) - arguably the three poster children for the concept of corporate pricing power. These companies have become synonymous with the idea that rising input costs provide air cover to push higher prices onto consumers.
So does the macro picture agree with the idea Consumer Staples are the best defensive bets for equity bears right now? The chart below shows the Qi model for XLP
Premium content, for a full analysis sign up to a month of insightsIf the equity market is on watch for an earnings recession, then Staples are the one area for guarded optimism. Analysts believe they can maintain performance.
Makes sense. XLP's three biggest holdings are Procter & Gamble (14.5%), Pepsi (10.2%) and Coca-Cola (9.7%) - arguably the three poster children for the concept of corporate pricing power. These companies have become synonymous with the idea that rising input costs provide air cover to push higher prices onto consumers.
So does the macro picture agree with the idea Consumer Staples are the best defensive bets for equity bears right now? The chart below shows the Qi model for XLP

19.04.2023
Tech. Priced for perfection?
The S&P 500 has rallied 7.6% from its March low, led by Tech and Communication services.
Regional banks, at the epicentre of the early March weakness, are still close to their lows. With the smaller cap Russell 2000 charting a path closer to regional banks than the S&P 500.
Alongside this, we saw an 8 standard deviation drop in 2yr yields last month. And this was a crucial fact enabling investors to jump on the longer duration, growth-orientated Technology heavyweights. Companies with the strongest balance sheets.
VIX dropped to sub-17, a level not seen before inflation fears started manifesting in 2022. In a way, the SVB shock did a favour for the broader US equity market – the market was able to compartmentalize the shock.
The question now is for how long is this sustainable? Despite the VIX at these levels, sentiment and positioning data are not at orange signs and data over Q1 has been good – just look at the nowcast or Citi surprise indices.
But that is where we were, and we need to contend with the seemingly divergent view between the rate and equity market.
The rates market is priced for peak rates this summer and cuts over H2, i.e. a credit crunch is coming and the labour market will weaken.
Equities, given the rally towards 6mth highs and the earnings yield gap to bonds at multi-year lows, seem to be suggesting the drop in expected bank lending will be enough to quell inflation but not enough to warrant a recession.
Two possible scenarios:
Regional banks, at the epicentre of the early March weakness, are still close to their lows. With the smaller cap Russell 2000 charting a path closer to regional banks than the S&P 500.
Alongside this, we saw an 8 standard deviation drop in 2yr yields last month. And this was a crucial fact enabling investors to jump on the longer duration, growth-orientated Technology heavyweights. Companies with the strongest balance sheets.
VIX dropped to sub-17, a level not seen before inflation fears started manifesting in 2022. In a way, the SVB shock did a favour for the broader US equity market – the market was able to compartmentalize the shock.
The question now is for how long is this sustainable? Despite the VIX at these levels, sentiment and positioning data are not at orange signs and data over Q1 has been good – just look at the nowcast or Citi surprise indices.
But that is where we were, and we need to contend with the seemingly divergent view between the rate and equity market.
The rates market is priced for peak rates this summer and cuts over H2, i.e. a credit crunch is coming and the labour market will weaken.
Equities, given the rally towards 6mth highs and the earnings yield gap to bonds at multi-year lows, seem to be suggesting the drop in expected bank lending will be enough to quell inflation but not enough to warrant a recession.
Two possible scenarios:
See more

18.04.2023
Complacency?
VIX is below 17. The chart below shows the equity market's "fear gauge" in z-score terms which is how Qi models all its macro variables. It is now 1.6 standard deviations below trend.
Eyeballing the chart you can see it is possible for VIX to spend a protracted period at these lower levels. However, it is also fair to point out that we are close to extremes of the range. These are levels that suggest equity markets are skewed to complacency.
Premium content, for a full analysis sign up to a month of insightsEyeballing the chart you can see it is possible for VIX to spend a protracted period at these lower levels. However, it is also fair to point out that we are close to extremes of the range. These are levels that suggest equity markets are skewed to complacency.

12.04.2023
HUF - the road to hell
is paved with positive carry
is paved with positive carry
The Hungarian Forint has been one of 2023's best performing currencies. Geopolitical risks and weak economic data have seemingly been offset by carry dynamics with the Hungarian National Bank remaining resolutely focused on keeping rates high to fight inflation.
Qi largely agrees but with some early notes of caution.
Macro-warranted fair value is still trending lower for USDHUF.
Premium content, for a full analysis sign up to a month of insightsQi largely agrees but with some early notes of caution.
Macro-warranted fair value is still trending lower for USDHUF.

11.04.2023
Hawkish RBNZ, dovish RBA
= AUDNZD downside?
= AUDNZD downside?
Last week both the RBNZ and RBA met. The former surprised with a more hawkish 50bp rate hike; the latter left rates unchanged and seemed to emphasize growth vulnerabilities rather than inflation threats.
Such a contrast in respective policy stances would appear to clearly point to downside pressure for AUDNZD fx.
But a key part of investing is measuring the degree to which existing news is already priced in. This short video shows how Qi can be used to:
Such a contrast in respective policy stances would appear to clearly point to downside pressure for AUDNZD fx.
But a key part of investing is measuring the degree to which existing news is already priced in. This short video shows how Qi can be used to:
See more
03.04.2023
The Aussie battler
After the initial excitement, the China re-opening trade has generally underwhelmed. Last week's news about Alibaba splitting up into six "baby Babas" has rekindled hopes that the tech sector at least could kick back into life.
What about other China trades? The Aussie Dollar appears to have lagged the most recent bounce in risk appetite. What's the quant macro perspective on the Aussie?
This is our Watchlist of various Aussie fx crosses:
What about other China trades? The Aussie Dollar appears to have lagged the most recent bounce in risk appetite. What's the quant macro perspective on the Aussie?
This is our Watchlist of various Aussie fx crosses:
See more

29.03.2023
Where AI and safe haven tech meet
Two of 2023's big investment themes - next generation AI, and the flight into big tech stocks as safe haven plays - both coincide with NVIDIA.
This 2 minute video looks at these dynamics and then adds a macro overlay. In short, while model value has risen some 14% year-to-date, the stock has run ahead of macro fundamentals.
This isn't a bearish recommendation per se. It remains a great stock with a strong story.
It is, however, a reminder that with quarter end looming (and potential rebalancing flows maybe looking to trim some winners) it has discounted a fair amount of good news already.
This 2 minute video looks at these dynamics and then adds a macro overlay. In short, while model value has risen some 14% year-to-date, the stock has run ahead of macro fundamentals.
This isn't a bearish recommendation per se. It remains a great stock with a strong story.
It is, however, a reminder that with quarter end looming (and potential rebalancing flows maybe looking to trim some winners) it has discounted a fair amount of good news already.
See more

22.03.2023
Stalling speed?
While we await tonight's momentous Fed decision, a quick re-cap on one of 2023's other big macro topics: China's re-opening.
Qi has a number of factors we use in our models that speak to the health of the Chinese economy and financial system.
Each time the factors are shown in z-score terms. Essentially when a factor is above (below) the zero bound, it is running above (below) trend. We update them below:
Premium content, for a full analysis sign up to a month of insightsQi has a number of factors we use in our models that speak to the health of the Chinese economy and financial system.
Each time the factors are shown in z-score terms. Essentially when a factor is above (below) the zero bound, it is running above (below) trend. We update them below:

14.03.2023
Defensive equity plays
Thus far, equity markets have taken the massive re-pricing of the bond market in its stride.
For some investors, Silvergate / Silicon Valley / Signature are idiosyncratic stories. Or, even if there are systemic risks, they believe the Fed will ride to the rescue.
But for others a recession has just become significantly more likely given the new banking landscape and the implications for the real economy.
Increased insurance contributions, competition for deposits, stricter lending standards all point to a material tightening in credit conditions.
For those investors, the critical question now is what are the best defensive bets?
A quick video.
For some investors, Silvergate / Silicon Valley / Signature are idiosyncratic stories. Or, even if there are systemic risks, they believe the Fed will ride to the rescue.
But for others a recession has just become significantly more likely given the new banking landscape and the implications for the real economy.
Increased insurance contributions, competition for deposits, stricter lending standards all point to a material tightening in credit conditions.
For those investors, the critical question now is what are the best defensive bets?
A quick video.
See more

08.03.2023
Decoupling
In 2022, global central banks had a common enemy. Everyone was unified in raising interest rates to fight inflation.
But, in 2023, there are early signs there could be sharp divergences between central banks and their priorities.
This week, the Fed seemingly doubled down on its hawkish message. Down in Australia while the RBA hiked rates, their forward guidance was more dovish.
Shifts in different country's relative policy stance will have huge ramifications for investors. That's true across asset classes but arguably currencies are at the sharp end of this. Even if you don't trade FX, this is an important market to watch.
In FX, interest rate differentials are often decisive. But not always. In 2023, knowing which currency pairs are being driven by rate differentials is going to be critical.
But, in 2023, there are early signs there could be sharp divergences between central banks and their priorities.
This week, the Fed seemingly doubled down on its hawkish message. Down in Australia while the RBA hiked rates, their forward guidance was more dovish.
Shifts in different country's relative policy stance will have huge ramifications for investors. That's true across asset classes but arguably currencies are at the sharp end of this. Even if you don't trade FX, this is an important market to watch.
In FX, interest rate differentials are often decisive. But not always. In 2023, knowing which currency pairs are being driven by rate differentials is going to be critical.
See more

19.04.2023
Tech. Priced for perfection?
The S&P 500 has rallied 7.6% from its March low, led by Tech and Communication services.
Regional banks, at the epicentre of the early March weakness, are still close to their lows. With the smaller cap Russell 2000 charting a path closer to regional banks than the S&P 500.
Alongside this, we saw an 8 standard deviation drop in 2yr yields last month. And this was a crucial fact enabling investors to jump on the longer duration, growth-orientated Technology heavyweights. Companies with the strongest balance sheets.
VIX dropped to sub-17, a level not seen before inflation fears started manifesting in 2022. In a way, the SVB shock did a favour for the broader US equity market – the market was able to compartmentalize the shock.
The question now is for how long is this sustainable? Despite the VIX at these levels, sentiment and positioning data are not at orange signs and data over Q1 has been good – just look at the nowcast or Citi surprise indices.
But that is where we were, and we need to contend with the seemingly divergent view between the rate and equity market.
The rates market is priced for peak rates this summer and cuts over H2, i.e. a credit crunch is coming and the labour market will weaken.
Equities, given the rally towards 6mth highs and the earnings yield gap to bonds at multi-year lows, seem to be suggesting the drop in expected bank lending will be enough to quell inflation but not enough to warrant a recession.
Two possible scenarios:
Regional banks, at the epicentre of the early March weakness, are still close to their lows. With the smaller cap Russell 2000 charting a path closer to regional banks than the S&P 500.
Alongside this, we saw an 8 standard deviation drop in 2yr yields last month. And this was a crucial fact enabling investors to jump on the longer duration, growth-orientated Technology heavyweights. Companies with the strongest balance sheets.
VIX dropped to sub-17, a level not seen before inflation fears started manifesting in 2022. In a way, the SVB shock did a favour for the broader US equity market – the market was able to compartmentalize the shock.
The question now is for how long is this sustainable? Despite the VIX at these levels, sentiment and positioning data are not at orange signs and data over Q1 has been good – just look at the nowcast or Citi surprise indices.
But that is where we were, and we need to contend with the seemingly divergent view between the rate and equity market.
The rates market is priced for peak rates this summer and cuts over H2, i.e. a credit crunch is coming and the labour market will weaken.
Equities, given the rally towards 6mth highs and the earnings yield gap to bonds at multi-year lows, seem to be suggesting the drop in expected bank lending will be enough to quell inflation but not enough to warrant a recession.
Two possible scenarios:
See more
- First, rates markets are too bearish. So far US data has been good, the US economic surprise index still ticking higher, a recession may not happen and rates may remain higher for longer with cuts pushed out towards 2024.
- In this scenario, the move higher in yields will hurt a driving force for Tech outperformance which has carried the market thus far. In so doing, the overall index will remain on the backfoot.
- Second, equities are indeed rich to bonds in the face of cuts in H2 of this year with the recession coming accompanied by higher credit spreads, weaker earnings. At the start of this month, the MOVE / VIX ratio was at multi-year highs reflecting the more sanguine equity view. In this scenario, that ratio would converge and Technology likely will also weaken given its higher beta status.
- This comes at a time where PE relatives are also at multi-year highs, supporting the view that optimism on a falling cost of capital has been important for Tech strength.

According to Qi, the Nasdaq 100 stands at just over 1 sigma rich to macro warranted valuation, having trading 1 sigma cheap into 2023. Higher economic growth (consensus GDP forecasts have been rising over Q1), tighter credit spreads and falling rate vol have all been important macro drivers.
Relative to the S&P 500, the largest macro driver has been falling rate vol. Model value is still rising but the rich valuation puts greater onus on the macro drivers continuing to move favourably
Relative to the S&P 500, the largest macro driver has been falling rate vol. Model value is still rising but the rich valuation puts greater onus on the macro drivers continuing to move favourably

We face a higher growth expectation hurdle rate going into Q2. Since 2010, the annualised return of the SPX is ~10%. However, if you first look at annualised returns when the Citi US Economic Surprise index is falling from peak to trough – those periods are associated with ~5% annualised return. When its rising from trough to peak, 20% annualised returns.
The Citi economic surprise index is inherently a mean-reverting index – it will more likely be falling than rising this quarter. The expectations hurdle for the Tech sector from the perspective of the forthcoming earnings season is also likely high – especially if we are indeed close to the end of the Fed rate hiking cycle. Bottom-line, in Q2 data dependency will increase.
The Citi economic surprise index is inherently a mean-reverting index – it will more likely be falling than rising this quarter. The expectations hurdle for the Tech sector from the perspective of the forthcoming earnings season is also likely high – especially if we are indeed close to the end of the Fed rate hiking cycle. Bottom-line, in Q2 data dependency will increase.



11.04.2023
Hawkish RBNZ, dovish RBA
= AUDNZD downside?
= AUDNZD downside?
Last week both the RBNZ and RBA met. The former surprised with a more hawkish 50bp rate hike; the latter left rates unchanged and seemed to emphasize growth vulnerabilities rather than inflation threats.
Such a contrast in respective policy stances would appear to clearly point to downside pressure for AUDNZD fx.
But a key part of investing is measuring the degree to which existing news is already priced in. This short video shows how Qi can be used to:
Such a contrast in respective policy stances would appear to clearly point to downside pressure for AUDNZD fx.
But a key part of investing is measuring the degree to which existing news is already priced in. This short video shows how Qi can be used to:
See more
- ascertain whether interest rate differentials are indeed the critical driver of any currency cross
- measure the degree to which yield spreads are already reflected in the price
- use Qi's macro valuations to provide a roadmap for potential trading opportunities
03.04.2023
The Aussie battler
After the initial excitement, the China re-opening trade has generally underwhelmed. Last week's news about Alibaba splitting up into six "baby Babas" has rekindled hopes that the tech sector at least could kick back into life.
What about other China trades? The Aussie Dollar appears to have lagged the most recent bounce in risk appetite. What's the quant macro perspective on the Aussie?
This is our Watchlist of various Aussie fx crosses:
What about other China trades? The Aussie Dollar appears to have lagged the most recent bounce in risk appetite. What's the quant macro perspective on the Aussie?
This is our Watchlist of various Aussie fx crosses:
See more

What stands out?
- Amongst the majors that are in macro regimes, Aussie screens as modestly cheap versus the Euro, Yen and both Kiwi and Canadian Dollar.
- The issue is macro momentum points to further Aussie depreciation.
- For example, since mid-March, Qi macro model value has fallen 1.25% for AUDNZD and 2.3% for AUDJPY; over the same period, macro-warranted model value for EURAUD has risen 1.8%.
- It's the same basic dynamic each time - interest rate differentials and risk appetite (VIX + corporate spreads) have driven the model moves.
- Tomorrow's RBA announcement will be important. But it is important to note the current pattern shows that, for these FX pairs, Aussie is not the chief beneficiary during periods of "risk on".
The exception is AUDUSD
Macro fair value has bounced 2.9% since mid-month.
Why? The chart below breaks down the attribution of the recent move. Every factor moved in its favour but the key drivers were metal prices, interest rate differentials and "risk on" (tighter credit spreads, lower VIX).
Macro fair value has bounced 2.9% since mid-month.
Why? The chart below breaks down the attribution of the recent move. Every factor moved in its favour but the key drivers were metal prices, interest rate differentials and "risk on" (tighter credit spreads, lower VIX).

There's a modest valuation edge. Qi has AUDUSD as 1.0% cheap as spot has slightly lagged the improvement in macro conditions.

When the valuation gap is modest, the investment conclusion is what model value does next is critical.
If you believe April can maintain a strong risk appetite vibe... if you believe tomorrow's RBA keeps future rate hike options open... then ignore the cheaper valuations on other Aussie crosses, AUDUSD upside is the the most efficient play.
If you believe April can maintain a strong risk appetite vibe... if you believe tomorrow's RBA keeps future rate hike options open... then ignore the cheaper valuations on other Aussie crosses, AUDUSD upside is the the most efficient play.

29.03.2023
Where AI and safe haven tech meet
Two of 2023's big investment themes - next generation AI, and the flight into big tech stocks as safe haven plays - both coincide with NVIDIA.
This 2 minute video looks at these dynamics and then adds a macro overlay. In short, while model value has risen some 14% year-to-date, the stock has run ahead of macro fundamentals.
This isn't a bearish recommendation per se. It remains a great stock with a strong story.
It is, however, a reminder that with quarter end looming (and potential rebalancing flows maybe looking to trim some winners) it has discounted a fair amount of good news already.
This 2 minute video looks at these dynamics and then adds a macro overlay. In short, while model value has risen some 14% year-to-date, the stock has run ahead of macro fundamentals.
This isn't a bearish recommendation per se. It remains a great stock with a strong story.
It is, however, a reminder that with quarter end looming (and potential rebalancing flows maybe looking to trim some winners) it has discounted a fair amount of good news already.
See more

14.03.2023
Defensive equity plays
Thus far, equity markets have taken the massive re-pricing of the bond market in its stride.
For some investors, Silvergate / Silicon Valley / Signature are idiosyncratic stories. Or, even if there are systemic risks, they believe the Fed will ride to the rescue.
But for others a recession has just become significantly more likely given the new banking landscape and the implications for the real economy.
Increased insurance contributions, competition for deposits, stricter lending standards all point to a material tightening in credit conditions.
For those investors, the critical question now is what are the best defensive bets?
A quick video.
For some investors, Silvergate / Silicon Valley / Signature are idiosyncratic stories. Or, even if there are systemic risks, they believe the Fed will ride to the rescue.
But for others a recession has just become significantly more likely given the new banking landscape and the implications for the real economy.
Increased insurance contributions, competition for deposits, stricter lending standards all point to a material tightening in credit conditions.
For those investors, the critical question now is what are the best defensive bets?
A quick video.
See more

08.03.2023
Decoupling
In 2022, global central banks had a common enemy. Everyone was unified in raising interest rates to fight inflation.
But, in 2023, there are early signs there could be sharp divergences between central banks and their priorities.
This week, the Fed seemingly doubled down on its hawkish message. Down in Australia while the RBA hiked rates, their forward guidance was more dovish.
Shifts in different country's relative policy stance will have huge ramifications for investors. That's true across asset classes but arguably currencies are at the sharp end of this. Even if you don't trade FX, this is an important market to watch.
In FX, interest rate differentials are often decisive. But not always. In 2023, knowing which currency pairs are being driven by rate differentials is going to be critical.
But, in 2023, there are early signs there could be sharp divergences between central banks and their priorities.
This week, the Fed seemingly doubled down on its hawkish message. Down in Australia while the RBA hiked rates, their forward guidance was more dovish.
Shifts in different country's relative policy stance will have huge ramifications for investors. That's true across asset classes but arguably currencies are at the sharp end of this. Even if you don't trade FX, this is an important market to watch.
In FX, interest rate differentials are often decisive. But not always. In 2023, knowing which currency pairs are being driven by rate differentials is going to be critical.
See more

The chart above looks across G10 fx pairs and ranks where rate differentials feature as a driver. The y-axis simply shows whether interest rate spreads screens as the top driver, or holds less sway within Qi's models.
This is the first step in the pre-trade process.
This is the first step in the pre-trade process.
- step one - know which fx crosses will react most as interest rate markets move to reflect shifts in different central banks' policy stance.
- in this instance, Aussie and Canadian crosses stand out as ones where cross-market rate spreads really matter. Yes both are resource-rich countries and that may lead some to use them as China proxies. But right-here-right-now, it is the RBA's and BoC's policy stance that matters more.
- for the US Dollar, if you have a strong view on the Fed (whether hawkish or dovish pivot), don't trade USDCHF. USDJPY and USDNOK will be more efficient.
- for the Euro, EURNOK reflects the ECB / Norges Bank reaction function. EURUSD is not currently a nominal rate differential play. Real yields matter more; and global growth considerations and credit markets matter even more still.
- step two - screen out the models that are not in regime (greyed out dots in the chart above) and focus on those where macro is the dominant narrative (red dots rather than grey).
- step three - add in the Qi valuation overlay. For example, USDNOK and AUDUSD have the biggest Fair Value Gaps. Both show the USD as having done a fair amount of work discounting the idea of a more hawkish Fed. And, in the case of the Aussie, now a more dovish RBA.
Divergence is going to be a big theme in 2023. Think China versus the US. Not just the politics but the contrast between Fed tightening and potential PBoC easing over this year.
Understanding what is driving asset prices is a critical first step in any investment process. #measuringmacro
Understanding what is driving asset prices is a critical first step in any investment process. #measuringmacro