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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.
11.05.2021
Chinese Cyclicals
Qi has built models for the Global X MSCI universe of ETFs tracking Chinese equity sectors.

Of those in a macro regime, the Chinese Energy sector stands out. The energy complex is rich to macro model in both the US & Europe, but not to the same degree as CHIE which is 2.2 sigma (10.6%) above macro-warranted fair value.
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Ja
11.05.2021
Qi & Bloomberg
The latest analysis from Bloomberg's John Authers pulls together the reaction to a weak US Payrolls report, & the importance of the current inflation narrative. He cites Qi analysis on global equity markets & their sensitivity to inflation expectations - Qi will flag, in real time, when inflation moves from being a tailwind for risky assets, to a headwind. The original work can be seen here
See more
Pexels Luck Galindo 544268
10.05.2021
Inflation
Wednesday’s US CPI dominates the week ahead. Despite the undershoot in US Payrolls, market expectations for US inflation rose aggressively on Friday. The common narrative being that a weak labour market ensures the Fed keep monetary policy easy for longer.
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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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Close
11.05.2021
Chinese Cyclicals
Qi has built models for the Global X MSCI universe of ETFs tracking Chinese equity sectors.

Of those in a macro regime, the Chinese Energy sector stands out. The energy complex is rich to macro model in both the US & Europe, but not to the same degree as CHIE which is 2.2 sigma (10.6%) above macro-warranted fair value.
See more
Ccc
Back-tests show when Chinese Energy is in regime, the FVGs have a strong track record of flagging profitable trading opportunities. This FVG level, however, hasn’t been seen before. Combined with macro fair value moving higher (just at a slower pace than spot) & the conclusion is that trying to pick a top in commodity plays currently is not prudent.

Instead, RETINA™ signals an alternative cyclical trade - Chinese Industrials. CHII isn’t in regime currently (55% model confidence) but valuation, even with that caveat, is close to macro fair value.

That leaves a neutral valuation picture but a positive momentum outlook with RETINA™ flagging a new uptrend potentially forming. Growth bulls looking for ongoing rotation to cyclicals, & looking for diversification away from western equities, could consider this alternative expression.
PDF download
Ja
11.05.2021
Qi & Bloomberg
The latest analysis from Bloomberg's John Authers pulls together the reaction to a weak US Payrolls report, & the importance of the current inflation narrative. He cites Qi analysis on global equity markets & their sensitivity to inflation expectations - Qi will flag, in real time, when inflation moves from being a tailwind for risky assets, to a headwind. The original work can be seen here
See more
Pexels Luck Galindo 544268
10.05.2021
Inflation
Wednesday’s US CPI dominates the week ahead. Despite the undershoot in US Payrolls, market expectations for US inflation rose aggressively on Friday. The common narrative being that a weak labour market ensures the Fed keep monetary policy easy for longer.
See more
Monday
5y TIPS break-evens are in line with macro fair value but 10y break-evens & the closely watched 5y5y forward inflation swap are both now high versus model value. The former are 0.5 sigma above, the latter 0.9 sigma; both currently equate to spot being around 13bp high versus model.

So relative to economic growth, commodity prices, Fed rate/QE expectations etc, inflation expectations look elevated.

Qi does not model the US Consumer Price Index. Qi displays the macro anatomy of the financial instruments that reflect market expectations for future inflation. This should not be interpreted as a call on US inflation itself. It shows how aggressive the re-pricing of US inflation expectations has been relative to other macro factors & financial assets.
PDF download
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.
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