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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.
Nasa Rtzw4F02Zy8 Unsplash
13.08.2021
US vs. Rest of the World
Two charts - S&P500 versus Developed equities, S&P500 vs Emerging Market equities.
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Omega Nebula 11053 1920
12.08.2021
Peak Infrastructure
Looking at the sector level may be too crude for stock pickers who seek to identify the individual winners & losers from the US Infrastructure deal.

Nevertheless the sector view can provide some signals on how the broader US equity market is pricing the successful passage of President Biden’s bill.
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Pexels Sam Willis 3934512
11.08.2021
US Inflation - then & now
Peak reflation was March 31st. At least as measured by 10y US Treasury yields which hit a 2021 high at 1.74% on that date. With the next batch of US CPI data due today, how sensitive are the different equity sectors to US inflation expectations now versus the end of Q1?

US equity sector sensitivity to inflation expectations –
Aug 10th
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Anna Anikina Ath9Gmakfpe Unsplash
10.08.2021
The commodity super cycle,
re-visited
Early in 2021, commodities led the global reflation charge. The direction of travel was clear; the only dilemma facing investors was how to best capture the bull move. Now, with crude, gold & silver all experiencing sharp pullbacks, what is the story from an objective macro perspective?
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Screen Shot 2021 08 02 At 154109
09.08.2021
Qi adds Trend & Momentum metrics
to existing Macro Framework
Qi’s macro framework has a new feature. In addition to the macro profile of an asset, Qi users can now look at the trend & momentum characteristics of the same security.
See more
Orion Nebula 11107 1920
09.08.2021
XLF on the move
Friday’s strong jobs report prompted a sharp increase in US bond yields. That in turn enabled Financials to be the star performer of the day, rising 2% & outperforming all other sectors. Rising interest rates are typically seen as a tailwind for Financials.
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Pexels Miriam Espacio 110854
05.08.2021
The Upside Down
Not Netflix’s Stranger Things, but the unorthodox policy beliefs of Turkish President Erdogan who argues higher interest rates result in higher inflation. With the Central Bank of Turkey meeting next week, Erdogan is ramping up pressure for a rate cut.
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Adam Birkett 77Hmm5Tg N4 Unsplash
04.08.2021
Energy - a protected short
RETINA™ is flashing a bearish signal on US energy versus European energy using the sector ETFs XLE & EXH1.
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Jake Weirick 09Bqxnvo7Eu Unsplash
03.08.2021
Aussie FX
A major narrative in markets currently is the threat to global growth from the Delta variant. In that context, the RBA’s decision to look through Australia’s economic lockdowns is notable. Their assessment overnight was to reassert their confidence in the recovery & stick with plans to gradually reduce the pace of QE.
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Casey Horner Rmowqdcqn2E Unsplash
02.08.2021
Factor Watch - Real Rates
Equity investors typically have less visibility on shifts in macro factors. But even macro players may lose a degree of perspective. Qi looks at macro factors in z-score terms, capturing their moves relative to long term trend.
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Nasa Rtzw4F02Zy8 Unsplash
13.08.2021
US vs. Rest of the World
Two charts - S&P500 versus Developed equities, S&P500 vs Emerging Market equities.
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SPY vs. EFA (iShares ETF tracking MSCI EAFE) spot price is in white, macro-warranted model value in red. US outperformance versus DM equities has been especially strong of late but appears to be peaking. Both spot & model value are topping out / potentially rolling over.

On this occasion the market has led. The white line has already rolled over and S&P500 is now 0.5 sigma (1.2%) cheap to DM equities on Qi models. Diversification away from US equities into the likes of Europe is already in motion. Our STOXX 600 vs S&P500 model is not in regime but a +0.5 sigma (+0.6%) Fair Value Gap points to the same conclusion.
Screen Shot 2021 08 11 At 161835
Same chart but this time SPY vs. EEM. The valuation perspective is the same. Spot price in white was trending higher but has lost some momentum recently.

One narrative to explain this would be the shift towards tapering from the Fed. Large parts of EM are already experiencing Central Bank monetary tightening. If Fed policy moves in that direction, one US tailwind / EM headwind is negated (or at least the contrast is less extreme).

The difference is the red line which still appears to be trending higher. Macro fair value has yet to peak & still supports US outperformance. Pick the right diversification play.
Screen Shot 2021 08 13 At 074844
Pexels Sam Willis 3934512
11.08.2021
US Inflation - then & now
Peak reflation was March 31st. At least as measured by 10y US Treasury yields which hit a 2021 high at 1.74% on that date. With the next batch of US CPI data due today, how sensitive are the different equity sectors to US inflation expectations now versus the end of Q1?

US equity sector sensitivity to inflation expectations –
Aug 10th
See more
Screen Shot 2021 08 10 At 190942
US equity sector sensitivity to inflation expectations – March 31st
Screen Shot 2021 08 10 At 191112
At the margin, sensitivity to inflation has fallen. Back in March, a one standard deviation increase in inflation expectations saw 4 sectors benefit (outperform the S&P500) by 2% plus. Today it’s only two models that display such sensitivity.

The sector split remains broadly the same – energy & financials are the greatest beneficiaries from reflation.

The biggest change comes in macro valuations. Both XLF & KBE are modestly rich to SPY. Energy (XLE & XOP) now screen as almost one sigma cheap versus the broader market.
Screen Shot 2021 08 02 At 154109
09.08.2021
Qi adds Trend & Momentum metrics
to existing Macro Framework
Qi’s macro framework has a new feature. In addition to the macro profile of an asset, Qi users can now look at the trend & momentum characteristics of the same security.
See more
On the Qi web platform, two tabs side-by-side enable clients to switch between the macro picture & the trend outlook. A quantitative way to align macro valuation & trend signals, giving clients the opportunity to see when an asset is:
  • rich or cheap versus macro-warranted model value.
  • on the cusp of forming a new trend.
  • the existing trend is overstretched, losing momentum & potentially reversing.
Sometimes the message from macro will conflict with the trend & momentum picture. But, when aligned, users have a powerful signal combining two of the critical dynamics driving any investment decision.
Screen Shot 2021 08 09 At 141916
Pexels Miriam Espacio 110854
05.08.2021
The Upside Down
Not Netflix’s Stranger Things, but the unorthodox policy beliefs of Turkish President Erdogan who argues higher interest rates result in higher inflation. With the Central Bank of Turkey meeting next week, Erdogan is ramping up pressure for a rate cut.
See more
That has already weighed on the Turkish Lira but it is striking that TRY features four times in the chart below which shows the ten biggest Fair Value Gaps across all Qi’s fx models. In all four, the Lira screens as rich to macro fair value.
Screen Shot 2021 08 05 At 092721
Both USDTRY & EURTRY are around one sigma (circa 5.0%) cheap to macro fair value. Versus safe havens the Yen & Swiss Franc, the Lira is around 0.5 sigma rich.

The former two back-test well. Buying USDTRY at a -1 sigma FVG when in regime has, since 2009, produced a 78.6% hit rate for an average return of 3.1%. The equivalent numbers for EURTRY are 70.6% & +0.5%.

President Erdogan would note that in each model, Developed Market bonds feature as a top driver & lower UST yields, Bunds yields etc are consistent with higher Dollar, Euro. Arguably though this speaks more to a quality dynamic.

China stress & crude oil are also prominent drivers. Risk off is Lira negative. Domestic Turkish monetary policy aside, the suggestion is TRY is vulnerable here if you believe markets face a deterioration in risk appetite.
Casey Horner Rmowqdcqn2E Unsplash
02.08.2021
Factor Watch - Real Rates
Equity investors typically have less visibility on shifts in macro factors. But even macro players may lose a degree of perspective. Qi looks at macro factors in z-score terms, capturing their moves relative to long term trend.
See more
The collapse in bond yields since March has been well documented. But, as the chart below shows, the move in 10y real rates is starting to look significant. European real yields in particular are now 3 standard deviations below trend – a level only seen on a handful of occasions over the last 10 years plus.
Image
The signal from the bond market would appear to be that inflation is indeed transitory & growth concerns are escalating. What are the implications?

Real rates do not look attractive from a long term valuation perspective. They have seen significant inflows of late but TIPS & BUNDei’s especially are not necessarily the best inflation hedges right here, right now.

Real yield differentials are the key driver of EURUSD & the move above helps explain the downward pressure on the Euro over May-July. Euro bears need to be on alert for any potential mean reversion.

Screening European equities for sensitivity to EUR real rates reveals it only a modest driver at both the index & sector level. At the margin, peripheral rather than core indices are the most sensitive; while Travel & Leisure plus Banks are the sectors that want real rates higher.
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