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Joshua Sortino Lqkhndzsf 8 Unsplash
07.11.2022
Sales exposure to China
The Watchlist below is not exhaustive but it shows a number of blue chip stocks that generate a high percentage of their revenue from sales to China. From different countries & sectors, they represent classic China plays for Western investors.

Qi Watchlists provide an instant snapshot. Which of these names are in macro regimes, versus those that are driven by idiosyncratic factors. And then which are rich or cheap versus prevailing macro conditions.

Semiconductor companies – Qualcomm, Broadcom, STMicroelectronics, Lam Research - dominate the cheap end of the range. Yes politics plays a big part here but even with Biden’s restrictions several of these companies are in macro regimes &, on Qi, have discounted a fair degree of bad news.

The rich end of the range is more of a mix. Advertiser JCDecaux, Swatch watches, while Glencore & Umicore capture the commodity/industrial complex.

Macro model confidence is less at this end of the spectrum but note, for example, Glencore is 6.0% rich to macro while its peer Fortescue sits at fair value.
See more
James Sullivan Eszrbtkq F8 Unsplash
04.11.2022
How to play any China bounce
Even if you are sceptical, the price action in China this week has issued a stark warning: with valuations this cheap & positioning so defensive, any policy pivot from Beijing could spark a strong market reaction.

Investors need to be on watch for any changes in Beijing's stance on the economy, on Zero Covid & a potential re-opening scenario. One way to do that is to employ / follow a China expert who will work through the long & dry Chinese Communist Party's dictums.

Another is to use the Qi framework to see how various Chinese assets are trading relative to overall macro conditions.

Here we present a short 5minute video showing how Qi Watchlists can help any investment process & can be especially useful when looking at specific themes.
See more
Raychel Sanner 0Pswkddfxii Unsplash
01.11.2022
Dovish pivot?
Its already happened
All eyes on tomorrow’s Fed meeting with risky assets hoping for signs of a dovish pivot. But, to a large degree, the dovish pivot has already happened.

The chart below refreshes the Qi credit impulse which we introduced last October. That note details our methodology but, in short, Qi models include a range of macro factors that speak to the ease of obtaining credit, the availability of liquidity & overall financing levels.

All are in z-score terms looking at the rate of change (not absolute level) relative to trend. A lower (higher) number points to tighter (easier) credit conditions.

The initial Covid lockdowns produced a sharp contraction in credit impulse, but then Central Banks threw the kitchen sink at it & conditions eased back equally quickly.

The 2022 monetary policy tightening is also evident. Both the Fed & ECB took overall credit conditions 2 standard deviations below trend.

More recently though expectations for future rate cuts, lower real yields, narrower credit spreads, easier US Dollar liquidity & others have all contributed to the credit impulse easing back. In fact, in Europe we are back at trend. The US is slightly behind but there too financial markets have already done a fair amount of work removing the effects of policy tightening.
See more
Felix Mittermeier L4 16Dmz 1C Unsplash
25.10.2022
EURO fx & the ECB
The ECB meet on Thursday. A 75bp rate hike is priced. That leaves the market watching hints about the potential terminal rate, language around reinvestment policy & TLTRO tweaks.

How is an FX investor supposed to monitor all these different moving parts? The WatchList below shows EUR – DM fx crosses on Qi’s Short Term models.
See more
17.10.2022
How to measure Dollar strength
& its impact on US earnings season
Aside from headline beats or misses, arguably the biggest topic of this earnings season will be how the strength of the Dollar has impacted companies. The traditional approach is to employ bottom up analysis of individual firms to gauge the degree to which they rely on overseas revenue.

Qi offers an alternative perspective; one that could complement the traditional way of doing things.

This short video shows how using both the Qi portal &/or the API allows equity investors to look at both the sector or single stock level, & quickly ascertain:
See more
Aaron Burden Nxt5Prob 7U Unsplash
11.10.2022
Earnings Season - the macro view
In case anyone needed reminding, Friday's Payrolls report emphasised the role of labour markets / inflation / Fed policy in shaping price action in equity markets.

But for the next few weeks company fundamentals will also return to centre stage. The top down / bottom up dichotomy remains.

Crudely, top down analysis still tends to err towards equities being complacent, not pricing in a hard landing scenario. Meanwhile, bottom up earnings forecasts have been reduced, & may present a lower bar to beat & hence generate some upside surprises.

Qi's point remains the same. The first step - even (especially) during earnings season - is to identify the stocks that are trading on company fundamentals versus those that are macro plays.

This chart (click to enlarge) should be the first thing all equity managers check. It shows this week's reporters. All the stocks on the left are about idiosyncratic risks - the alpha comes from stock picking skills.

But three names - Blackrock, First Republic Bank & Fastenal - are in macro regimes.
See more
Hs 2009 25 Hubble
04.10.2022
How to navigate another bear market rally
What if yesterday was the start of another bear market squeeze? The summer relief rally saw the S&P500 rally around 17%.

If we're heading for a repeat, how can Qi help investors find the best way to capture tactical upside?

The short video below walks through the simple steps a Qi user could employ using sector ETFs as an example.
See more
Nasa Rtzw4F02Zy8 Unsplash
03.10.2022
Macro context
Friday’s core PCE deflator – historically the Fed’s preferred inflation gauge – printed higher than consensus, providing yet another reason to doubt the ‘peak inflation’ narrative.

But despite that, market expectations for inflation continue to fall. 5y US TIPS break-evens fell almost 50bp over September.

Similarly, after a hawkish re-pricing post Jackson Hole, money markets have once again started to doubt the Fed’s ability to keep policy rates high throughout 2023.

The only way to explain lower inflation expectations & a willingness to fade the Fed’s explicit rate guidance, is that markets' biggest collective fear is a hard landing for the global economy.

Not new news, but some context may help. The chart shows US & European inflation expectations in 5yrs time using the inflation swap market.
See more
27.09.2022
How to measure capitulation
The chart shows VIX, VDAX & VXEEM in Qi z-score terms. All have risen above long term trend, especially US equity volatility, but none look especially elevated.

With the S&P500 now taking out the previous June lows, for many the lack of a more aggressive spike in equity volatility is a curious misnomer.
See more
David Moum Nbqlwhovu6K Unsplash
20.09.2022
How to manage
Italian election risk
Inflation & Central Bank rate hikes dominate the news. But this weekend’s Italian elections present a clear risk too.

How are investors supposed to measure Italian political risks & gain any insight on how it can impact their holdings?

Qi uses peripheral European Government Bond spreads as the markets’ way of pricing stress in countries like Italy. If an asset has a positive relationship with EuroZone sovereign confidence, it wants BTP spreads for example to remain contained.

The Optimise Trade Selection function allows users to screen a selected universe of assets for sensitivity to a single factor like BTP spreads. This enables us to quantify which assets are most reliant on Italian bond markets remaining well behaved.

Below (click image to expand) we look at European equity sectors & Real Estate emerges as the area most sensitive, & therefore most vulnerable should spreads blow wider.
See more
Close
Joshua Sortino Lqkhndzsf 8 Unsplash
07.11.2022
Sales exposure to China
The Watchlist below is not exhaustive but it shows a number of blue chip stocks that generate a high percentage of their revenue from sales to China. From different countries & sectors, they represent classic China plays for Western investors.

Qi Watchlists provide an instant snapshot. Which of these names are in macro regimes, versus those that are driven by idiosyncratic factors. And then which are rich or cheap versus prevailing macro conditions.

Semiconductor companies – Qualcomm, Broadcom, STMicroelectronics, Lam Research - dominate the cheap end of the range. Yes politics plays a big part here but even with Biden’s restrictions several of these companies are in macro regimes &, on Qi, have discounted a fair degree of bad news.

The rich end of the range is more of a mix. Advertiser JCDecaux, Swatch watches, while Glencore & Umicore capture the commodity/industrial complex.

Macro model confidence is less at this end of the spectrum but note, for example, Glencore is 6.0% rich to macro while its peer Fortescue sits at fair value.
See more
Screenshot 2022 11 07 At 103553
This Watchlist is available upon request. Build your own lists to customise your Qi experience.
James Sullivan Eszrbtkq F8 Unsplash
04.11.2022
How to play any China bounce
Even if you are sceptical, the price action in China this week has issued a stark warning: with valuations this cheap & positioning so defensive, any policy pivot from Beijing could spark a strong market reaction.

Investors need to be on watch for any changes in Beijing's stance on the economy, on Zero Covid & a potential re-opening scenario. One way to do that is to employ / follow a China expert who will work through the long & dry Chinese Communist Party's dictums.

Another is to use the Qi framework to see how various Chinese assets are trading relative to overall macro conditions.

Here we present a short 5minute video showing how Qi Watchlists can help any investment process & can be especially useful when looking at specific themes.
See more
Raychel Sanner 0Pswkddfxii Unsplash
01.11.2022
Dovish pivot?
Its already happened
All eyes on tomorrow’s Fed meeting with risky assets hoping for signs of a dovish pivot. But, to a large degree, the dovish pivot has already happened.

The chart below refreshes the Qi credit impulse which we introduced last October. That note details our methodology but, in short, Qi models include a range of macro factors that speak to the ease of obtaining credit, the availability of liquidity & overall financing levels.

All are in z-score terms looking at the rate of change (not absolute level) relative to trend. A lower (higher) number points to tighter (easier) credit conditions.

The initial Covid lockdowns produced a sharp contraction in credit impulse, but then Central Banks threw the kitchen sink at it & conditions eased back equally quickly.

The 2022 monetary policy tightening is also evident. Both the Fed & ECB took overall credit conditions 2 standard deviations below trend.

More recently though expectations for future rate cuts, lower real yields, narrower credit spreads, easier US Dollar liquidity & others have all contributed to the credit impulse easing back. In fact, in Europe we are back at trend. The US is slightly behind but there too financial markets have already done a fair amount of work removing the effects of policy tightening.
See more
Image 70
Moreover, you could argue this snapshot under-represents the move in overall financial conditions. Qi does not include equity markets in our credit impulse measure, so there is no impact from any potential wealth effect accrued from October’s bounce in equities.

For policy hawks this creates a paradox. Dovish language tomorrow further removes the tightening of financial conditions needed to combat inflation.
Felix Mittermeier L4 16Dmz 1C Unsplash
25.10.2022
EURO fx & the ECB
The ECB meet on Thursday. A 75bp rate hike is priced. That leaves the market watching hints about the potential terminal rate, language around reinvestment policy & TLTRO tweaks.

How is an FX investor supposed to monitor all these different moving parts? The WatchList below shows EUR – DM fx crosses on Qi’s Short Term models.
See more
Screenshot 2022 10 25 At 084149
The two majors – EURUSD & EURJPY – remain out of regime. But the rest all have high model confidence numbers – macro has strong explanatory power.

EURNZD & EURNOK offer decent entry levels for Euro upside for ECB hawks & ‘risk off’ proponents. Wider interest rate differentials, wider credit spreads & spikes in risk aversion (VIX) dominate both models & are consistent with EUR appreciation.

At the other end of the spectrum are EURAUD, EURCAD & EURCHF. EURAUD shares the same defensive characteristics as the two above but this time it is 0.6 std dev (1.2%) rich to model.

EURCAD looks similar in terms of valuation (+0.7, +1.0% rich to model), although credit spreads play a less prominent role.

The EURCHF model emphasises rate differentials again but also economic growth. With a FVG of +1.1 std dev (+2.4%), the EUR has discounted a fair degree of support from any relative strength in EuroZone GDP & a tighter ECB policy stance.

On back-tests, EURCHF is in coin toss territory with a hit rate around 50% but selling this FVG on EURAUD & EURCAD elicits a 70% & 66% hit rate respectively. These two crosses look the most efficient plays should Thursday's ECB meeting underwhelm.
17.10.2022
How to measure Dollar strength
& its impact on US earnings season
Aside from headline beats or misses, arguably the biggest topic of this earnings season will be how the strength of the Dollar has impacted companies. The traditional approach is to employ bottom up analysis of individual firms to gauge the degree to which they rely on overseas revenue.

Qi offers an alternative perspective; one that could complement the traditional way of doing things.

This short video shows how using both the Qi portal &/or the API allows equity investors to look at both the sector or single stock level, & quickly ascertain:
See more
  • on current patterns, which areas of the market are most vulnerable to Dollar strength.
  • which sectors or stocks are running rich or cheap relative to aggregate macro conditions.
Aaron Burden Nxt5Prob 7U Unsplash
11.10.2022
Earnings Season - the macro view
In case anyone needed reminding, Friday's Payrolls report emphasised the role of labour markets / inflation / Fed policy in shaping price action in equity markets.

But for the next few weeks company fundamentals will also return to centre stage. The top down / bottom up dichotomy remains.

Crudely, top down analysis still tends to err towards equities being complacent, not pricing in a hard landing scenario. Meanwhile, bottom up earnings forecasts have been reduced, & may present a lower bar to beat & hence generate some upside surprises.

Qi's point remains the same. The first step - even (especially) during earnings season - is to identify the stocks that are trading on company fundamentals versus those that are macro plays.

This chart (click to enlarge) should be the first thing all equity managers check. It shows this week's reporters. All the stocks on the left are about idiosyncratic risks - the alpha comes from stock picking skills.

But three names - Blackrock, First Republic Bank & Fastenal - are in macro regimes.
See more
Image
The next question might be, inflation is the dominant macro theme currently, so which of those 3 names is most sensitive to inflation expectations? The two financials have a very small negative sensitivity. Higher inflation is a modest headwind.

Meanwhile industrial name Fastenal is a beneficiary from rising inflation.
Newplot 5
Looking at the S&P500 level the dominant macro narrative is the Fed's tightening of financial conditions, especially via the channel of higher real yields & wider credit spreads. How do these reporting stocks look relative to those factors?
Newplot 6
All our macro names share a fairly common profile when it comes to sensitivity to real yields. The march higher in real rates in 2022 has been a big negative for all of three.
Newplot 7
There is, however, a fair degree of dispersion when it comes to the role of credit spreads. Blackrock is the standout with a strong reliance on credit spreads not blowing wider.

Which may help explain why BLK screens as the cheapest in macro valuation terms. It is now 0.8 std dev (11.1%) cheap to macro-warranted model fair value.

The key takeaway though is that because Qi delivers the independent relationship between a stock & all the key macro factors, we can use these as building blocks.

What's the key macro topic you wish to investigate? Qi can isolate the topics top of mind for you, identify sensitivity & add a valuation overlay. All on the stocks you care about.
Hs 2009 25 Hubble
04.10.2022
How to navigate another bear market rally
What if yesterday was the start of another bear market squeeze? The summer relief rally saw the S&P500 rally around 17%.

If we're heading for a repeat, how can Qi help investors find the best way to capture tactical upside?

The short video below walks through the simple steps a Qi user could employ using sector ETFs as an example.
See more
Nasa Rtzw4F02Zy8 Unsplash
03.10.2022
Macro context
Friday’s core PCE deflator – historically the Fed’s preferred inflation gauge – printed higher than consensus, providing yet another reason to doubt the ‘peak inflation’ narrative.

But despite that, market expectations for inflation continue to fall. 5y US TIPS break-evens fell almost 50bp over September.

Similarly, after a hawkish re-pricing post Jackson Hole, money markets have once again started to doubt the Fed’s ability to keep policy rates high throughout 2023.

The only way to explain lower inflation expectations & a willingness to fade the Fed’s explicit rate guidance, is that markets' biggest collective fear is a hard landing for the global economy.

Not new news, but some context may help. The chart shows US & European inflation expectations in 5yrs time using the inflation swap market.
See more
Screenshot 2022 10 03 At 092606
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.
Screenshot 2022 10 03 At 091807
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.
27.09.2022
How to measure capitulation
The chart shows VIX, VDAX & VXEEM in Qi z-score terms. All have risen above long term trend, especially US equity volatility, but none look especially elevated.

With the S&P500 now taking out the previous June lows, for many the lack of a more aggressive spike in equity volatility is a curious misnomer.
See more
Screenshot 2022 09 27 At 090148
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.
Screenshot 2022 09 27 At 092912
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
David Moum Nbqlwhovu6K Unsplash
20.09.2022
How to manage
Italian election risk
Inflation & Central Bank rate hikes dominate the news. But this weekend’s Italian elections present a clear risk too.

How are investors supposed to measure Italian political risks & gain any insight on how it can impact their holdings?

Qi uses peripheral European Government Bond spreads as the markets’ way of pricing stress in countries like Italy. If an asset has a positive relationship with EuroZone sovereign confidence, it wants BTP spreads for example to remain contained.

The Optimise Trade Selection function allows users to screen a selected universe of assets for sensitivity to a single factor like BTP spreads. This enables us to quantify which assets are most reliant on Italian bond markets remaining well behaved.

Below (click image to expand) we look at European equity sectors & Real Estate emerges as the area most sensitive, & therefore most vulnerable should spreads blow wider.
See more
Screenshot 2022 09 20 At 113123
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

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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.
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