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Topical observations from the Qi macro lens. Build your investment roadmap with the best-in-class quantitative analysis and global data.
27.07.2021
Navigating China Stress
Events in China are critical. The implications are widespread & potentially enormous for financial markets. How can investors track across asset classes, across geographies to monitor where the fall-out is leading or lagging?
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27.07.2021
RETINA™ & US Sectors
Whether strong earnings, retail buying of the dip or a simple TINA mentality, US equities are back near the highs. Those looking beyond the moves in big tech, however, should note some cautionary signs under the surface.
Premium content, for a full analysis sign up to a month of insights26.07.2021
US Earnings
Earnings season has been an unambiguous positive for US equities thus far, & gone a long way to propel indices higher despite other headwinds. This week is busy with a number of bellwethers due to report.
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16.07.2021
RETINA™ goes interactive
RETINA™ scans your instrument universe intraday and notifies you when valuation and/or trend measures align to generate high probability trade ideas. Used by the world’s leading asset managers and hedge funds globally.
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16.07.2021
Momentum turns defensive
RETINA™ has two bullish signals on US Consumer Staples. Both are momentum signals, & both advocate defensive Staples versus cyclical sectors.
Premium content, for a full analysis sign up to a month of insights15.07.2021
Storm clouds gathering
The S&P500 fell out of macro regime on June 29th. That’s the first time the US equity benchmark has not been explained by macro factors in three-&-half years. Low macro model confidence is often associated with increased volatility.
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13.07.2021
US equities & inflation - a regime shift?
In our “Inflation – Friend or Foe?” observation we simply added up the number of S&P500 single stocks with a positive relationship with US inflation expectations (‘inflation tailwind’), versus the number with a negative relationship (‘inflation headwind’). Updating that chart today reveals an interesting shift.
Premium content, for a full analysis sign up to a month of insights12.07.2021
US earnings season
- macro still matters
- macro still matters
US earnings season gets under way this week. A period when bottom-up analysis of company fundamentals typically dominates. This does not, however, mean investors can ignore macro.
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09.07.2021
Fading FX safe havens
The Dollar rally is starting to look somewhat extended on Qi’s macro valuations. However, the majority of USD crosses have fallen out of regime meaning such signals come with a health warning.
Premium content, for a full analysis sign up to a month of insights08.07.2021
Qi & EPFR
EPFR's best-in-class fund flow data is a natural complement for Qi's quantitative framework. Aligning their data on client sentiment/positioning with Qi's macro drivers & macro valuations, makes for a powerful combination.
In this instance we discuss the technology / growth versus cyclical / value rotation in US equities.
In this instance we discuss the technology / growth versus cyclical / value rotation in US equities.
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27.07.2021
Navigating China Stress
Events in China are critical. The implications are widespread & potentially enormous for financial markets. How can investors track across asset classes, across geographies to monitor where the fall-out is leading or lagging?
See more
The Qi framework help investors maintain a real-time objective picture of Beijing’s tech crackdown. Optimise Trade Selection allows users to run empirical stress tests. So, for example, if you think a Yuan devaluation is a potential risk scenario, managers can screen their asset class for sensitivity to USDCNH.
Watchlists are useful ways to monitor how different asset classes are faring under the enhanced regulatory regime in China. This “China Multi-Asset” watchlist is now available to all Qi subscribers. Thus far it is worth noting:
Watchlists are useful ways to monitor how different asset classes are faring under the enhanced regulatory regime in China. This “China Multi-Asset” watchlist is now available to all Qi subscribers. Thus far it is worth noting:
- Chinese equity indices are all around two sigma cheap to their macro environments. When regulatory risk is the key driver of markets, it might be expected to see low macro model confidence. However, while Shanghai Comp has just 27% R-Squared, every other Chinese equity market – whether index, future or tracking ETF – is in a macro regime.
- In other areas though the sell-off is less extreme. The S&P500 is ‘only’ 3.4% rich versus Chinese large caps on our SPY vs FXI model. That’s just a 0.5 standard deviation move.
- KWEB - the China Internet ETF - is approaching one sigma cheap to macro on an outright basis; but is only half a sigma cheap when looking at the relative value versus either US internet (FDN) or US tech more broadly (NASDAQ)
- Chinese small caps - ECNS is the iShares ETF tracking MSCI’s China small caps index – have not suffered as much. Model confidence is just 51% but the FVG is ‘only’ 0.7 sigma, 6.9%. One to watch if you fear broader contagion?
- Note the sole Chinese asset with a rich macro valuation is REMX – the VanEck Rare Earth ETF. Ultimately, this is not the end in the secular growth of technology; just about how the data is used, where the companies list & how the industry is regulated.
- In Fixed Income, Chinese yields have been on a multi-month downtrend. 2y & 5y yield models are not in regime. The 10y is & shows yields as 16bp below macro-warranted model value.
- Credit is taking a beating. Whether China specific – KCCB is the KraneShares China High Yield ETF & is 1.6% cheap to macro. Or a broader Asian view. China has a 44% weight in the iShares Asia High Yield ETF AHYG. EverGrande, for example, was the second biggest holding as of end-July.
- Finally, note USDCNH. It is in a strong macro regime & the Dollar is now 1.4% rich versus the Yuan. That’s modest but still the highest FVG since late April. Memories of the 2015/16 devaluation which effectively exported deflation to the rest of the world will be front-&-centre for many investors.
26.07.2021
US Earnings
Earnings season has been an unambiguous positive for US equities thus far, & gone a long way to propel indices higher despite other headwinds. This week is busy with a number of bellwethers due to report.
See more
The models shown below are not exhaustive but includes a number of this week’s benchmark releases across big tech & cyclicals. The chart shows which are in macro regimes versus those that are driven by idiosyncratic risks. And, for the former, whether they are rich or cheap relative to their macro environment.
In terms of macro’s importance there is a clear skew: most tech stocks lie to the left of the 65% model confidence threshold. Company fundamentals matter more than macro currently. Most of the stocks in macro regimes are industrial names.
In valuation terms perhaps the most striking feature is how close to fair model value most stocks are. Caterpillar is amongst the cheapest but the FVG is only 0.25 sigma, 3.2% below model. Its regime is mixed but the manufacturer is especially reliant on a steeper yield curve.
Boeing is also modestly cheap but this time tight credit spreads, rising crude oil prices & rising US real rates are more important for bulls.
General Dynamics is the richest of those models in regime. At 0.5 sigma, 4.5% the FVG is near 3month highs. Sensitivity to Fed QE is high suggesting it’s a stock that needs to watch event risk like this week’s FOMC & next month’s Jackson Hole.
In valuation terms perhaps the most striking feature is how close to fair model value most stocks are. Caterpillar is amongst the cheapest but the FVG is only 0.25 sigma, 3.2% below model. Its regime is mixed but the manufacturer is especially reliant on a steeper yield curve.
Boeing is also modestly cheap but this time tight credit spreads, rising crude oil prices & rising US real rates are more important for bulls.
General Dynamics is the richest of those models in regime. At 0.5 sigma, 4.5% the FVG is near 3month highs. Sensitivity to Fed QE is high suggesting it’s a stock that needs to watch event risk like this week’s FOMC & next month’s Jackson Hole.
16.07.2021
RETINA™ goes interactive
RETINA™ scans your instrument universe intraday and notifies you when valuation and/or trend measures align to generate high probability trade ideas. Used by the world’s leading asset managers and hedge funds globally.
See more
Users can now interact with RETINA™ and fire requests to the trade bot @qi-trade-bot asking for an updated trend / momentum chart, or the latest valuation picture. Simply ask the bot to “plot momentum” or “plot valuation” for an automatically generated updated chart.
Plot Momentum
Plot Momentum
- USDJPY is still in an uptrend but the short term trend indicator is rolling over suggests momentum is waning.
Plot Valuation
- The spot price of the QQQ / SPY ratio is slightly rich versus Qi macro model value.
15.07.2021
Storm clouds gathering
The S&P500 fell out of macro regime on June 29th. That’s the first time the US equity benchmark has not been explained by macro factors in three-&-half years. Low macro model confidence is often associated with increased volatility.
See more
Now, for the first time since October 2020, Qi’s Cross Asset Absorption Ratio shows a sharp rise from a very low level. That suggests financial markets are becoming less diverse – across asset classes & across geographies, markets are being driven by a single factor (probably global Central Bank policy stimulus). Such concentration risk often provides an early warning of a ‘risk off’ event.
Qi’s Vol Indicator, another measure that looks at macro’s ability to explain the variance of equity, bond & FX markets, is also rising. Again, when macro fundamentals can’t explain the price action of global capital markets, the risk is markets are at the mercy of more volatile drivers such as positioning & sentiment.
The Vol Indicator is not yet at levels that have historically been consistent with significant VIX spikes, but it is moving towards that territory. Moreover, when combined with the other two signals, there are sufficient alarm bells ringing. There are building signs that risky assets could face turbulence ahead.
The Vol Indicator is not yet at levels that have historically been consistent with significant VIX spikes, but it is moving towards that territory. Moreover, when combined with the other two signals, there are sufficient alarm bells ringing. There are building signs that risky assets could face turbulence ahead.
12.07.2021
US earnings season
- macro still matters
- macro still matters
US earnings season gets under way this week. A period when bottom-up analysis of company fundamentals typically dominates. This does not, however, mean investors can ignore macro.
See more
Of the 24 US companies releasing this week, over half are in macro regimes. In the chart below, the 9 models to the left of the vertical bound are in micro regimes. It’s business-as-usual for stock pickers who can focus on idiosyncratic earnings. However, all those models to the right of the vertical bound are being driven by macro factors. Equity investors focused exclusively on company news will miss vital market-moving information.
As always, the start of earning season is dominated by financials & several of this week’s reporting big banks share some common macro characteristics. All are modestly rich to model. JPM & Goldman Sachs are the most expensive, both at +0.5 sigma to macro fair value; amongst the bulge bracket Citi, at +0.2 sigma vs model, is the least expensive.
All the banks want rising inflation, rising real rates & steeper yield curves. Interestingly, Delta Air Lines wants the same macro environment &, given it is at model fair value, what these critical drivers do next will be hugely important for the DAL stock price.
The days ahead will see a wealth of stock specific analysis but, as “The impossibility of a ‘bottom up’ equity strategy” explains, “however you pick [your] stocks, you usually end up with something that is largely driven by macro factors”. It’s earnings season, but macro still matters.
All the banks want rising inflation, rising real rates & steeper yield curves. Interestingly, Delta Air Lines wants the same macro environment &, given it is at model fair value, what these critical drivers do next will be hugely important for the DAL stock price.
The days ahead will see a wealth of stock specific analysis but, as “The impossibility of a ‘bottom up’ equity strategy” explains, “however you pick [your] stocks, you usually end up with something that is largely driven by macro factors”. It’s earnings season, but macro still matters.
08.07.2021
Qi & EPFR
EPFR's best-in-class fund flow data is a natural complement for Qi's quantitative framework. Aligning their data on client sentiment/positioning with Qi's macro drivers & macro valuations, makes for a powerful combination.
In this instance we discuss the technology / growth versus cyclical / value rotation in US equities.
In this instance we discuss the technology / growth versus cyclical / value rotation in US equities.
See more
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