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Macro Markets 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.
Adam Birkett 77Hmm5Tg N4 Unsplash
08.07.2021
Falling Bond Yields & Financials
Conventional wisdom holds that falling bond yields are especially painful for financials.
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07.07.2021
Growth Scare
Poor economic data at the start of the new quarter has prompted widespread angst that the reflation trade of early 2021 is giving way to a growth scare. However, some assets have been pointing to lower growth for a while.
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Monday1
06.07.2021
Italy vs Spain
They may be outperforming their European peers in the football, but Italy & Spain are lagging in terms of equity market performance.

Both the FTSE MIB & IBEX 35 are around one sigma cheap versus pan European indices.
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Pexels Sam Willis 3934512
02.07.2021
Hedging China
A key macro theme for H2 2021 is the normalisation of the Chinese policy stance & the implications for slower growth. Falling credit impulse data, for example, is getting a lot of attention.
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Qeye4
01.07.2021
TAA - Emerging Market Bonds
A new 3-bar conviction signal for tactical asset allocators at the start of a new quarter.
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Juskteez Vu Tirxot28Znc Unsplash
30.06.2021
Trading OPEC+
How is an equity investor supposed to navigate the OPEC+ meeting? In many respects the answer is largely intuitive - in both the US & Europe, energy itself plus financials display the strongest relationship with crude oil prices.

However, by aligning sensitivity to Brent with macro-warranted valuation, the standout is actually European Travel & Leisure. It’s not as sensitive as US Energy or US Financials, but it is the biggest beneficiary amongst all European sectors if crude resumes its uptrend.

Moreover, it is the cheapest sector in macro valuation terms. Now 0.7 sigma (9.6%) cheap to macro. Meaning some of the bad news is already priced should Friday’s meeting hurt oil; & it presents the best entry level if crude rallies & prompts a broader risk on move.
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28.06.2021
Chinese Tech - end of the bear market?
Since the cancellation of the Ant Group IPO last year there has been a steady stream of negative news for Chinese technology companies. The ongoing threat of regulation has weighed heavily on the sector. Have we now reached the point where all the bad news is in the price?

RETINA™ is flagging a bullish momentum signal for Chinese IT – both short & long term metrics point to the formation of a new uptrend.
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Icircle
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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Omega Nebula 11053 1920
23.06.2021
NASDAQ at the highs...
… so, for technology bulls, what is lagging?
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Casey Horner Rmowqdcqn2E Unsplash
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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Monday1
06.07.2021
Italy vs Spain
They may be outperforming their European peers in the football, but Italy & Spain are lagging in terms of equity market performance.

Both the FTSE MIB & IBEX 35 are around one sigma cheap versus pan European indices.
See more
The chart below shows the IBEX 35 vs. Stoxx 600 Fair Value Gap; the FTSE MIB vs. Euro Stoxx 600 model is slightly less extreme but largely the same. The fall in the spot price of the RV ratio is happening while macro model value remains unchanged.
Tuesday
Both models are in regime & show FTSE MIB / IBEX 35 as high beta plays on a European recovery. Rising economic growth/inflation expectations, steeper yield curves, low risk aversion & tight credit spreads are all consistent with Italian / Spanish outperformance.

Covid - the impact of the Delta variant on the European tourism industry - could be one factor at play. Increasingly though it appears as though the IBEX & FTSE MIB have priced at least some of the bad news in terms of the economic fall-out.

Maybe tonight’s Euro 2020 semi-final will provide a sentiment bounce for at least one of the southern European equity markets.
Pexels Sam Willis 3934512
02.07.2021
Hedging China
A key macro theme for H2 2021 is the normalisation of the Chinese policy stance & the implications for slower growth. Falling credit impulse data, for example, is getting a lot of attention.
See more
This has been a growing theme on Qi as well with China-related factors rising in importance.

The charts take six global benchmark assets - S&P500, Euro Stoxx 600, 10y US Treasury & 10y Bund yields, plus EURUSD & USDJPY - & shows the ranking of Chinese sovereign CDS as a driver amongst the entire model factor set.

The higher the ranking, the more important this measure of Chinese sovereign stress is for that asset. Sovereign CDS can be interpreted as insurance against default risk. Wider (narrower) spreads implies there is greater (less) demand for protection against a Chinese credit event.
Wed2
China stress is a top 5 driver for 10y US Treasuries & Bunds. However, it is US rates which really stand out. It is the second biggest driver in the entire factor set - second only to crude oil. A one standard deviation widening in Chinese CDS currently equates to a 10bp decline in UST yields.

US & European equity benchmarks were highly sensitive to China in May but that has fallen in June. Note though model confidence for the S&P500 is now 62% - it has fallen out of regime. Declining sensitivity could reflect a broader shift away from macro rather than the driver itself.
Wed1
China stress is the second biggest driver of USDJPY. The relationship is positive – turbulence in China is consistent with higher USDJPY. That paints a mixed picture since USDJPY’s sensitivity to traditional risk aversion metrics (VIX etc) have recently re-established a negative relationship. After months early in 2021 when spikes in VIX benefitted the Dollar, they now favour the Yen once again.
Wed3
This demonstrates that not all ‘risk off’ episodes are created equal. The catalyst for a deterioration in risk appetite can vary. Choosing the right hedge first requires the ability to recognise the source of ‘risk off’; but then to know which assets are sensitive to that particular move.
Qeye4
01.07.2021
TAA - Emerging Market Bonds
A new 3-bar conviction signal for tactical asset allocators at the start of a new quarter.
See more
RETINA™ is flashing a bullish momentum signal on EM bonds.EMB, the iShares ETF tracking JPM’s hard currency EM bond index, is potentially carving out a new uptrend.
Thursday2
Both ST & LT z-scores are positive denoting an uptrend; the slope is turning increasingly positive suggesting momentum is picking up. Hence the 3 bar conviction level. RETINA™ operates on a 0-4 bar conviction scale; calibrating where macro valuation & trend/momentum dynamics are aligned, or not. One is average conviction; four is full conviction.

This is a 3-bar signal because macro valuation is neutral. The Fair Value Gap is +0.2 sigma (+0.4%).

Note a strong macro regime (83% model confidence) & Central Bank QE Expectations account for almost half of the model. EMB needs ongoing QE to perform.

If you believe the Fed & other CBs keep bond volatility low / prevent another taper tantrum, then the momentum outlook for EM Bonds looks encouraging.
28.06.2021
Chinese Tech - end of the bear market?
Since the cancellation of the Ant Group IPO last year there has been a steady stream of negative news for Chinese technology companies. The ongoing threat of regulation has weighed heavily on the sector. Have we now reached the point where all the bad news is in the price?

RETINA™ is flagging a bullish momentum signal for Chinese IT – both short & long term metrics point to the formation of a new uptrend.
See more
Monday
This is not a valuation signal. Having spent most of 2021 cheap to macro, the recent bounce has closed the Fair Value Gap. The Qi model for the Global X ETF that tracks MSCI’s China Information Technology sector is now essentially at macro fair value.

With the valuation picture neutral - rather than opposing momentum - that means RETINA™ assigns a 3-bar conviction level to the signal. Four bar signals are the highest conviction trades.

The next Qi upgrade due in early July will include the addition of the RETINA™ trend / momentum charts to each model page. Clients will be able to see all Qi’s traditional macro analysis plus the trend charts for all models across every asset class.

In the case of Chinese technology, investors will need to maintain a close eye on Beijing’s regulatory push. However, subscribers will be able to align macro fundamentals with momentum dynamics, & monitor both in real-time. Signal from noise™
Omega Nebula 11053 1920
23.06.2021
NASDAQ at the highs...
… so, for technology bulls, what is lagging?
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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.
Wed1
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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