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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
07.05.2021
Mixed messages
Falling real yields suggest the bond market is signalling peak economic growth. But the commodity market is shouting loudly that inflation is the number one threat.

For now, equity markets seem to be listening to commodities rather than bonds. Hence the cyclical versus tech split in performance this week.

But, if commodities are the main driver, what’s the empirical snapshot – which equities are most sensitive, what do macro valuations look like?
See more
2021 06 17 19 22 16
07.05.2021
Macroscope:
Nations love inflation until they dont
While equity investors were put on their heels by US Treasury Secretary Yellen's mere utterance of a possible future rate hike, at the moment inflation is the friend and positive macro driver of most global equity markets, according to Quant Insight (Qi) data tracking the influence of macro drivers on asset prices. Yellen later backtracked but her comment still sent shockwaves through global financial markets, especially after recent PMI data pointing to bottlenecks in supply chains and upward pressure on inflation.

Qi data indicate that some global equity markets benefit more from inflation than others with smaller markets in Europe such as Austria, Greece, Norway, Spain and Italy getting the biggest tailwind from rising inflation expectations. On broader macro valuation terms there is a distinct East-West divide as US and European equity markets look consistently expensive while markets cheap to macro are generally in Asia, with Japan (both the Nikkei and TOPIX indices), Indonesia, Korea, India and Emerging Markets both attractively valued and benefitting from inflation.
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Hs 2009 25 Hubble
06.05.2021
BoE Quantitative Easing
& the Pound
Today’s Bank of England meeting will be closely watched for any signs of a taper in their asset purchase programme. The Pound’s sensitivity to BoE QE has crept higher of late.
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Juskteez Vu Tirxot28Znc Unsplash
05.05.2021
Global equity indices & inflation
The recent round of global PMI data has sharpened fears about supply bottlenecks & upward pressure on inflation.
See more
05.05.2021
Nikkei 225 vs. S&P500
The Fair Value Gap on Qi’s Nikkei 225 vs. S&P500 model hit -1.1 sigma (-4.8%) at the end of April. Yesterday’s fall in US equities has enabled the Nikkei to start clawing back some of its recent underperformance & the FVG now sits at -0.8 sigma (-3.6%).

Missing the absolute low in valuation has one potential benefit though – the latest price action looks to have established a trend turn & we now have a momentum signal.
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Pexels Sam Willis 3934512
04.05.2021
Tactical opportunity in US Tech
Over the last 10 days the US technology sector has underperformed the broader market by around 2.5%. Yet macro fair value for XLK / SPY ratio has actually increased slightly over the same period. That has opened up a Fair Value Gap of 1.7 sigma (2.8%) & triggered a Divergence signal.
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Orion Nebula 11107 1920
30.04.2021
US vs. Europe
European equities are near recent lows relative to the US. On Qi, the Euro Stoxx 600 vs S&P500 model is 0.7 sigma (1.2%) below macro fair value, towards the bottom of recent ranges.
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30.04.2021
European Autos
Qi’s Tactical Asset Allocation work flagged that the uptrend in the European Auto sector was exhausted & rolling over. The momentum picture remains weak – RETINA™ shows a new ST downtrend while the LT uptrend is sharply decelerating. However, from a macro valuation perspective it is starting to screen as cheap relative to several peers.
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Picture1
29.04.2021
Canada: the multi-asset view
No excitement from the Fed overnight but it’s now one week since the Bank of Canada became the first G7 central bank to signal an end to extraordinary monetary policy accommodation. How has the dust settled?
See more
Bloomberg3
28.04.2021
Qi & Bloomberg
Bloomberg's article "Bitcoin at Inflection Point Amid Recent Selloff, Technicals Show" cites Qi's analysis of the crypto complex.
See more
Close
Nasa Rtzw4F02Zy8 Unsplash
07.05.2021
Mixed messages
Falling real yields suggest the bond market is signalling peak economic growth. But the commodity market is shouting loudly that inflation is the number one threat.

For now, equity markets seem to be listening to commodities rather than bonds. Hence the cyclical versus tech split in performance this week.

But, if commodities are the main driver, what’s the empirical snapshot – which equities are most sensitive, what do macro valuations look like?
See more
Friday
The chart shows equity indices & their sensitivity to metals (copper, iron ore) & energy (crude oil); plus a macro valuation (Qi Fair Value Gap). The further to the right a model is, the bigger the benefit it gets from rising commodity prices.

Russell 2000 is the winner but there is a diverse mix – Indonesia EIDO, Austria EWO & Mexico EWW. The common factor is all are rich to macro already; albeit the Russell only marginally so.

Looking for the equity market with the strongest sensitivity to commodities but a cheap valuation suggests South Africa EZA has lagged & offers an attractive entry level.
PDF download
2021 06 17 19 22 16
07.05.2021
Macroscope:
Nations love inflation until they dont
While equity investors were put on their heels by US Treasury Secretary Yellen's mere utterance of a possible future rate hike, at the moment inflation is the friend and positive macro driver of most global equity markets, according to Quant Insight (Qi) data tracking the influence of macro drivers on asset prices. Yellen later backtracked but her comment still sent shockwaves through global financial markets, especially after recent PMI data pointing to bottlenecks in supply chains and upward pressure on inflation.

Qi data indicate that some global equity markets benefit more from inflation than others with smaller markets in Europe such as Austria, Greece, Norway, Spain and Italy getting the biggest tailwind from rising inflation expectations. On broader macro valuation terms there is a distinct East-West divide as US and European equity markets look consistently expensive while markets cheap to macro are generally in Asia, with Japan (both the Nikkei and TOPIX indices), Indonesia, Korea, India and Emerging Markets both attractively valued and benefitting from inflation.
See more
Picture 1
Download our PDF to read more and view:

1. Global Markets this week - Top Macro drivers
2. Key Insights
PDF download
Juskteez Vu Tirxot28Znc Unsplash
05.05.2021
Global equity indices & inflation
The recent round of global PMI data has sharpened fears about supply bottlenecks & upward pressure on inflation.
See more
On current patterns, nearly every equity index globally has positive sensitivity to inflation expectations; i.e. they remain a tailwind rather than a headwind to equity performance. When sensitivity flips to negative we will see evidence of a significant regime shift - that markets are worrying about margin compression or an earlier policy response from Central Banks.
Wednesday
In pure sensitivity terms it is European markets - notably Austria EWO, Greece, Norway ENOR, Italy & Spain - that are the biggest beneficiaries from rising inflation expectations.

In broader macro valuation terms there is a distinct East - West split. US & European models are consistently rich to macro model value. Those that are cheap to model include both the Nikkei & TOPIX in Japan, Indonesia EIDO, South Africa EZA, South Korea EWY & the broader EM index EEM
PDF download
Pexels Sam Willis 3934512
04.05.2021
Tactical opportunity in US Tech
Over the last 10 days the US technology sector has underperformed the broader market by around 2.5%. Yet macro fair value for XLK / SPY ratio has actually increased slightly over the same period. That has opened up a Fair Value Gap of 1.7 sigma (2.8%) & triggered a Divergence signal.
See more
Tuesday
In outright terms, US technology is currently not explained by macro factors. NASDAQ, US IT, XLK, SOXX etc are all below our threshold for a macro regime. However, the relative value model of XLK vs. SPY is in regime with model confidence at 69%.

That regime demonstrates tech’s resilience in a defensive environment. XLK outperforms when inflation expectations & commodities are falling, when real rates decline & credit spreads widen. This is a good entry level for those thinking the reflation trade is due further consolidation.

Note though that one third of model explanatory power comes from Quantitative Easing expectations. Tech needs ongoing Fed QE to outperform. Long XLK versus the broader market looks good tactically given the entry level, but there is clear event risk on the horizon – if the June 16th FOMC does start the clock for a possible taper of Fed asset purchases, on current patterns that will provide a significant headwind to the US tech sector.
PDF download
30.04.2021
European Autos
Qi’s Tactical Asset Allocation work flagged that the uptrend in the European Auto sector was exhausted & rolling over. The momentum picture remains weak – RETINA™ shows a new ST downtrend while the LT uptrend is sharply decelerating. However, from a macro valuation perspective it is starting to screen as cheap relative to several peers.
See more
The chart below shows the 10 biggest valuation gaps across all Qi’s global ETF relative value models. European Autos (EXV5) is in three of the top 10 FVGs; & each time it is cheap & at a one year extreme.
Qqq
There is a strong need for bottom up analysis here - to assess the impact from the shortage in semiconductor chips & possible production cuts. Align Qi’s macro valuation plus trend/momentum analytics with company fundamentals.

From a macro perspective, Autos are 6.8% cheap versus Travel & Leisure EXV5 vs. EXV9, 6.8% cheap vs Banks EXV1 vs. EXV5 & 5.6% cheap vs Media EXV5 vs. EXH6.

All back-test well. Buying Autos vs Banks at 1.4 sigma since 2009, for example, produces a 75% hit rate & +1.7% average return. Moreover, it now has a Divergence signal too with spot price of EXV1 / EXV5 & macro fair value moving in opposite directions over the last 10days.

Separately, Qi RETINA™ has flagged a momentum sell signal on European Industrials. The sector is in a strong macro regime but there is no FVG of note. This is not a valuation call, but a pure trend signal – the uptrend looks stretched & has started to lose momentum.
PDF download
Picture1
29.04.2021
Canada: the multi-asset view
No excitement from the Fed overnight but it’s now one week since the Bank of Canada became the first G7 central bank to signal an end to extraordinary monetary policy accommodation. How has the dust settled?
See more
Canada
  • Equities. The TSX 60 ETF XIU is in a strong regime & one where it is comfortable with reflation. Rising inflation, higher bond yields are all tailwinds – they currently reflect stronger growth, not tighter financial conditions. A FVG of +0.4 sigma (+2.2%) suggests a modest amount of this favourable scenario is already discounted.
  • FX. Spot CAD has moved aggressively since the BoC last week but, on the whole, it is moving in line with macro fundamentals. Most models are within 0.5 sigma of fair value. The exception is USDCAD at -0.9 sigma (-2.2%). A 1 year low for the FVG & a level that back-tests well (72% hit rate, +0.8% average return).
  • Fixed Income. Canadian credit (VSC, ZCM) & Canadian rates are close to model value. Even with the BoC induced re-pricing of the front end, 1y1y CAD is within 0.5 sigma of fair value. Most interesting is the 2s10s curve – in regime & 18bp too flat versus macro. An attractive entry point for those who believe QT + issuance equates to a steeper yield curve.
PDF download
Bloomberg3
28.04.2021
Qi & Bloomberg
Bloomberg's article "Bitcoin at Inflection Point Amid Recent Selloff, Technicals Show" cites Qi's analysis of the crypto complex.
See more
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