Insights

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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.

24.06.2021

Re-pricing liquidity

For several markets, last week’s fall-out from the Fed’s apparent policy pivot, has now itself been fully unwound. In other areas, the impact lingers.

The lasting effect is most noticeable in the first chart which shows Fed rate expectations as measured by the shape of the Euro$ futures strip. The sharp re-pricing after the Fed dot plot was a 3 standard deviation move which has yet to meaningfully mean revert. That shift in the markets’ pricing of the Fed represents a tightening of financial conditions.

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23.06.2021

NASDAQ at the highs...

… so, for technology bulls, what is lagging?

22.06.2021

Cue Jerome Powell

Screening across all Qi’s government bond, bond futures, interest rates swaps & STIRT models for the 10 biggest Fair Value Gaps (subject to each model being in regime), produces the chart below.

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21.06.2021

Growth scare - leaders & laggards

Price action increasingly looks like markets are experiencing a sharp mid-cycle growth scare. Which assets are leading & lagging in this move?

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18.06.2021

Defying gravity?

The more the correction in commodities continues, the more crude oil looks like an outlier. Why is it ignoring the move lower in the rest of the commodity complex; & is it merely lagging & therefore a potential short?

17.06.2021

What's new: The quarterly Qi update

Get updates on Quant Insight company growth, new solutions, fund manager insights, and media references.

17.06.2021

Dollar squeeze? AUD not USD

Last night’s Fed surprise has once again raised the prospect of a short squeeze for the US Dollar. What’s the quantitative macro picture for G10 fx?

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16.06.2021

Why are 10y US yields down? Two expert views

DataTrek is Wall Street's go-to commentary for differentiated & actionable investment ideas. Their daily note offers a unique blend of market insight & data-driven analysis.

In that respect, DataTrek & Quant Insight offer the same output but arrive there via two distinct processes. Nick & Jessica between them offer 40 years of experience in the investment industry. Quant insight employs a proprietary version of PCA to show the macro profile of any financial asset.

How macro factors explain the variance of stocks, bonds & currencies; valuation gaps (the difference between spot & actual price) to flag potential trade ideas; & regime shifts as the macro environment changes.

Human intelligence & experience remain an invaluable asset but, in the modern & increasingly complex world, adding in a machine driven framework can only add value to the investment process. This is the first Quant insight / DataTrek joint venture, focusing on 10y US Treasury yields. Summary below, full article via the pdf link at the bottom. Further JVs will follow.

16.06.2021

Need an inflation hedge?

FOMC day. The consensus expects little change with greater focus on August & Jackson Hole for the first signs of a taper. For some, that makes today a non-event. For others, Fed inaction will act as a green light to engage in inflation trades.

10y TIPS break-evens are now 0.5 sigma or 15bp low versus macro-warranted model value. 5y TIPS are 0.7 sigma (29bp) below macro model value. Both are close to 1 year lows in Qi Fair Value Gap terms; attractive entry levels for anyone needing inflation protection.

15.06.2021

America is back

America is back in geopolitical terms; what about in financial markets?

There is a clear health warning – at 53%, model confidence has fallen below our threshold & out of a macro regime. It is, however, worth noting the extreme Fair Value Gap in Qi’s Euro Stoxx 600 vs. S&P500 relative value model.

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23.06.2021

NASDAQ at the highs...

… so, for technology bulls, what is lagging?

On Qi, the standout is the KraneShares China Internet ETF KWEB which is 1.4 sigma (19%) cheap to macro. As ever with tech, antitrust legislation is a clear risk; & probably explains why, at 63%, Qi’s model is just below the threshold for a macro regime.

That means valuation signals come with a health warning. Still, the valuation gap is close to 1y lows & the contrast with both the NASDAQ & ChiNext is stark. It has also lagged the recovery experienced by other tech favourites.

At the index level, while NASDAQ & ChiNext flirt with new highs, in macro terms Hang Seng Tech looks more like KWEB. That may speak to micro factors as the two rival exchanges compete but, at 8% cheap to macro model value, the contrast is again striking.

Another popular tech vehicle are the ARK Invest funds. Qi has models for both ARK Innovation ARKK & ARK Genomic Revolution ARKG. At the lows in mid-May, they were 28% & 24% cheap to model respectively.

Both have now caught up & trade in line with model fair value. Note also both are back in macro regimes. Even funds focused exclusively on disruptive technology are not immune to their macro environment.

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18.06.2021

Defying gravity?

Usual health warning with commodities & their propensity for supply/demand shocks. However, at 86%, Qi’s model confidence suggests traditional macro factors are doing a good job of explaining the price action in Brent & WTI.

Crude is close to macro fair value. Spot price (white) & model value (red) in the chart above track each other closely. Spot is 3.9% above but that is a negligible +0.25 in standard deviation terms. Moreover, RETINA™ has been unambiguously bullish on crude from a trend / momentum perspective.

The macro profile displays a desire for healthy Chinese economic growth & no sovereign stress in China or Europe. The other big driver is bond yields - the top 3 positive drivers are 10y US Treasury & Bund yields, plus 10y US real rates. It speaks to a healthy demand backdrop / risk on environment.

Together, they identify one scenario bears should monitor. Slower Chinese credit impulse that weighs on economic growth & credit quality, & potentially fuels a flight-to-quality trade in DM government bonds, is a toxic combination for crude oil on current patterns.

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17.06.2021

What's new: The quarterly Qi update

Get updates on Quant Insight company growth, new solutions, fund manager insights, and media references.

Growth, product development and unique trading signals

Recently we've opened a US office responding to rapid customer growth. With Qi customers evaluating
the effects of reflation and growth expectations this year, we see particular interest in Relative Value opportunities at the sector or index level, using macro valuation plus price momentum to improve tactical asset allocation, and adding macro screens to
enhance stock selection.
Hot off the press is Qi's new RETINA service providing a pipeline of actionable trading signals. I hope the following client insights and product updates are useful and look forward to hearing from you.

Mahmood Noorani, CEO and Co-Founder

Download the full 'What's new' article below

PDF download

16.06.2021

Why are 10y US yields down? Two expert views

10-year Treasury yields have been bucking consensus ever since the start of Q2 2021, moving lower even as inflation chatter has only grown louder. History and current macro drivers explain why this is happening.
DataTrek Research believes Treasury prices anchor on long-run historical inflation trends. Convincing this market that the next 10 years will be different from the last decade could take a long time. It took 25 years, for example, for Treasuries to fully reset after the 1970s.
Quant Insight’s proprietary data analysis shows oil prices need to rise materially – and quickly – from here to push yields higher. And even if US equity markets are calm just now, there is actually a relationship between credit concerns in other markets and declining Treasury yields.
Bottom line: 10-year Treasuries don’t trade exclusively on current US inflation data. They never have. To predict their next move, you need to look at a wide range of other macro drivers.

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16.06.2021

Need an inflation hedge?

For those unable to invest in Fixed Income securities, the traditional inflation hedge lies in the commodity complex. That trade can take many shapes – spot commodities, commodity currencies, ETFs, or resource stocks. Many have rallied aggressively in 2021 but, more recently, several - like copper - have experienced a sharp pullback.

Relative to the macro environment, which offers the best trade expression currently? Qi’s “Commodity Super Cycle” watchlist is a curated list of potential commodity related plays.

The cheapest model is Chilean copper miner Antofagasta. The May sell-off has taken it 1.6 sigma (31%) below macro fair value. But it fell out of a macro regime in April & any FVG comes with a health warning.
Not as extreme, but the Global X Copper Miners ETF COPX displays a similar profile – cheap to macro but out of regime.
Amongst the single stocks, Korean steel giant POSCO is notable - in a macro regime & 0.6 sigma or 11% cheap to model.
Spot commodities are typically rich to model. However, valuation gaps are modest and while Gold & WTI are in regime, Silver & Natural Gas are not currently explained by macro.
In FX, valuations are mixed but the one consistent is model confidence – not a single commodity cross is in a macro regime. On current patterns, commodity currencies have divorced themselves from macro fundamentals.

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