HomeSolutionsInsightsNewsroomPeopleContactLogin

Acclaimed macro analytics
Portfolio Construction & Risk Management
Trading Solutions
Macro Models
Thematic equity baskets

Announcements
Press
Blog

Qi’s QQQ vs. SPY model shows the NASDAQ as 1.1 sigma or 2.9% cheap to the macro environment (chart below). The inflection signal points to QQQ outperformance to catch up with macro conditions.

In risk premia space the message is consistent across VTV vs. VUG & IWD vs. IWF – growth is cheap to value. Both show macro fair value flat-lined over Feb / early March, while the spot price moved higher as Value outperformed.

But, over the last 3 days, spot & model have turned lower together. The result is a bearish inflection signal – Growth can outperform once again.

Aside from valuation, the other striking feature is that, as per “Worried about stagflation?”, the macro regime shows tech / growth looks a decent stagflation play.

Lower economic growth, commodity prices, real rates; combined with rising inflation expectations, tighter USD liquidity & a stronger Dollar are all consistent with QQQ / Growth outperformance.

If you fear a stagflation scenario, tech currently displays some nice defensive properties. And, at current levels, one with a valuation edge.

Global X’s ETF for Lithium LIT is now 1.4 sigma (14.3%) cheap to macro model value. Historically oil shocks sow the seeds for the next round of innovation &, for those who can afford a long run view, electric vehicle related plays would seem to fall into that category.

Global X also have an ETF for cyber security, BUG – already a critical theme & one which is playing an increasingly significant role in geopolitical disputes.

LIT has only been in regime & this cheap to macro five times since 2009. For BUG, valuation is not cheap, rather it has fallen from rich territory back to macro fair value.

Finally, it is worth noting the macro regimes of these models. They are still equities so suffer from spikes in risk aversion & wider credit spreads, but sensitivity is less than many peers.

Moreover, both display stagflation characteristics - they have positive sensitivity to inflation expectations, but negative sensitivity to global growth. Given stagflation is a clear risk in the mind of many, these could be useful assets to track.

The chart shows those FX pairs in regime ranked by their sensitivity to Dollar liquidity (cross-currency basis swaps). A positive (negative) relationship means tighter $ funding levels move that currency cross lower (higher), every other factor held constant.

USDZAR & USDCLP both display strong negative sensitivity. All else equal, a Dollar liquidity squeeze drives Dollar fx higher versus the Rand & Peso. Moreover, both pairs screen as cheap making them efficient EM expressions should a funding scare take hold.

AUDUSD has $ liquidity as a top positive driver (the Aussie will suffer if money market stress continues), & it is rich to model.

For all three models, risk aversion & metal prices dominate. Higher metals offer an offset each time but, should funding stress evolve & prompt a broad 'risk off' move, these currencies look vulnerable.

At model fair value there is no valuation edge but EURUSD is interesting. Sensitivity to Dollar liquidity has increased fourfold since the start of the year & it has now replaced real yield differentials as the main macro driver.

Again, if you fear the fall-out from sanctions could cause liquidity issues, EURUSD is a key variable to track as money market stress spreads through the system.

The Ukraine conflict has now prompted another surge in inflation, but it is critical to understand the nuances.

The initial market reaction saw short term (2y - purple line) inflation expectations spike – they are now 2 standard deviations above trend. But longer term (10y - red line) expectations remained relatively contained. It was a classic commodity supply shock. Near term price pressures but limited impact for the longer term inflation picture.

That spike is starting to filter out the curve. Inflation fears are showing signs of potentially becoming entrenched. Arguably that diminishes the room for manoeuvre for Central Banks juggling the growth shock from the conflict.

Macro investors will watch the shape of the TIPs break-even curve as a critical gauge of how the markets view the inflation outlook. For equity funds less in tune with macro factor shifts, the Qi portal can provide a way to track both the underlying move in inflation & which securities are most sensitive.