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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.
Anna Anikina Ath9Gmakfpe Unsplash
28.04.2021
Food Inflation
Commodity prices continue to surge higher. What is striking in the table below is:
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Orion Nebula 11107 1920
27.04.2021
European Re-Opening Trade
For proponents of the re-opening trade, Europe offers a classic value play. And Financials are often the epicentre of the value style, especially in Europe. On Qi, European Financials are now 1.3 sigma (4.3%) cheap versus Technology.
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Jeremy Thomas E0Ahdsenmdg Unsplash
26.04.2021
Amber light for risk appetite
VIX remains sub 20 but the Qi Vol Indicator continues to tick higher. When macro’s explanatory power starts to fall across global equity, bond & FX markets, it can act as a warning that markets are due a bout of volatility.
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Hs 2009 25 Hubble
22.04.2021
Pricing Power
Any second phase of the re-opening trade could be more discerning than a simple growth versus value dynamic. Divergence between winners & losers could take a different shape. Pricing power is one variable that could be key.
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Adam Birkett 77Hmm5Tg N4 Unsplash
21.04.2021
Go Green
It has been announced that Chinese President Xi Jinping will attend the US Climate Summit that starts tomorrow, boosting hopes the two superpowers can cooperate on this issue while still disagreeing on many others.
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Casey Horner Rmowqdcqn2E Unsplash
21.04.2021
Re-visiting Reflation:
XLI vs. XLU
This latest pullback in US equities has seen US Industrials move to 0.8 sigma (5.8% cheap) versus Utilities. That’s a one year low for the Qi Fair Value Gap.
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Chiina
20.04.2021
EM Rates: Time to re-think
China allocations
All 10y yield models within Qi’s universe of EM rates are in regime, & expensive to macro model value. That is especially true in Asia, & China in particular.

After months of substantial inflows, there has been a pause in foreign buying of Chinese government bonds. The WSJ cites valuations, especially narrower yield spreads versus US Treasuries, plus an end to the Renminbi’s 9 month rally as reasons for the hiatus.
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2021 04 18 00 54 50
19.04.2021
Saboteur Looks to the Stars for Quant insight Rebrand
Monday 19 April 2021 - Brand studio Saboteur has unveiled a radical new rebrand for financial data company Quant Insight.

Quant Insight (Qi) is an innovative and unique provider of financial market analytics. Mathematical models from the science of astrophysics are used to decode the massive torrents of macro data that flood through the financial markets every minute of every day. It’s an inspired move – astrophysics is the art of finding patterns and connections in complex systems with billions of moving parts. So what happens if this science is applied to the financial markets?
It is, like all great ideas, brilliantly simple.
It’s a radical approach that demanded a radical new design.
See more
Nasa Rtzw4F02Zy8 Unsplash
19.04.2021
What's happening with US bond yields?
Short covering. Japanese buying at the start of their new fiscal year. Safe haven demand. The usual guessing game to explain the sharp move lower in US Treasury yields is well underway.
See more
Nasa Hi5Dx2Obas Unsplash
15.04.2021
Copper - the pause that refreshes
After a huge rally over 2020, Copper has paused for breath over the last few months.

Critically though, macro fair value has not deteriorated. Model confidence remains high & tracking GDP growth for US, China, Europe & Japan remain the dominant drivers. Dr Copper retains its role as a bellwether for the global economic cycle.
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Anna Anikina Ath9Gmakfpe Unsplash
28.04.2021
Food Inflation
Commodity prices continue to surge higher. What is striking in the table below is:
See more
  • Despite idiosyncratic supply shocks, overall the commodity complex remains well explained by macro fundamentals.
  • Only 4 models that are in regime are more than 0.5 sigma away from macro fair value. Commodities are largely trading in line with their macro environment.
  • There is a notable valuation skew to soft commodities being rich to macro.
Soft
  • Copper *, at 0.8 sigma (8.2%) above model fair value, is the only metal in the rich zone.
  • Otherwise the standouts are all agricultural commodities. Wheat is not in a macro regime but rich; Corn is 1.4 sigma (18.2%) rich to macro while the broader Invesco Agriculture ETF DBA is 1.2 sigma (7.7%) above model.
  • Commodities are inherently a unique asset class - macro signals must always be aligned with supply/demand fundamentals. But even with cold & dry weather in US & Brazil, macro factors suggest anyone looking for a pause in this latest leg of the commodity super cycle should consider agriculture first up.
* since April 15th's "Copper - the pause that refreshes" spot copper has rallied 10.5%. The FVG was -0.3 sigma at that time & now stands at +0.8 sigma. Macro-warranted model value has moved higher from $428 to $435, but spot has moved up more aggressively.
Orion Nebula 11107 1920
27.04.2021
European Re-Opening Trade
For proponents of the re-opening trade, Europe offers a classic value play. And Financials are often the epicentre of the value style, especially in Europe. On Qi, European Financials are now 1.3 sigma (4.3%) cheap versus Technology.
See more
Techfin
Improvements in the vaccination programme, increased mobility & the fact that it has lagged the US, are all cited as reasons why Europe benefits from the next wave of the reflation trade.

Qi’s European Technology vs Financials model is in regime (76% model confidence) with an intuitive set of drivers. The European Technology sector may be smaller than its US equivalent but it shares the same defensive characteristics. Falling inflation, declining commodities & wider credit spreads are all consistent with tech outperforming banks.

But at +1.3 sigma (+4.3%) the Fair Value Gap for the SX8P / SXFP ratio is getting towards the top end of recent ranges, suggesting a fair degree of that news is in the price.

Back-testing the significance of the +1.3 sigma FVG as a sell signal since 2009 produces a decent hit rate (63%), a negative average return but positive median return of +1.1%. There is a fat-tail of outsized losses that skew the results. Adding a discretionary overlay & incorporating stop/losses alongside the Qi valuation signal is critical.

Still, as a trade expression for a European re-opening, this merits consideration.
Hs 2009 25 Hubble
22.04.2021
Pricing Power
Any second phase of the re-opening trade could be more discerning than a simple growth versus value dynamic. Divergence between winners & losers could take a different shape. Pricing power is one variable that could be key.
See more
  • Energy & Financials remain the preeminent inflation plays amongst US sectors. Their sensitivity to US inflation expectations has been trending higher all year & they remain, by some margin, the biggest beneficiaries of reflation.
  • Consumer Staples are often touted as the most vulnerable to inflation. They are perceived as lacking pricing power, & hence higher costs equate to lower margins.
  • Staples want higher inflation, but sensitivity is the smallest of all sectors that are in macro regimes. Health Care, Consumer Discretionary & IT all show even less sensitivity but that probably reflects all have seen model confidence drop below our 65% threshold for a regime
Inflation1
The rotation trade that has dominated equity markets has been undergoing a consolidation for the last month. For many, this is a pause before the primary trend re-establishes itself. The second phase of the reflation trade could be more discerning than a simple growth versus value dynamic though.

Divergence between winners & losers could take a different shape. Pricing power is one variable that could be key. Which stocks have the ability to pass higher raw material costs onto the consumer in the form of higher prices?

Bottom-up analysis will provide one answer. It is worth overlaying that with the quantitative top down picture. The chart above shows the eleven GICS Level 1 US sectors & their sensitivity to US inflation expectations.

Should any of these relationships turn negative, we would have an empirical demonstration that rising inflation had flipped from being a tailwind to a headwind for that sector.
Adam Birkett 77Hmm5Tg N4 Unsplash
21.04.2021
Go Green
It has been announced that Chinese President Xi Jinping will attend the US Climate Summit that starts tomorrow, boosting hopes the two superpowers can cooperate on this issue while still disagreeing on many others.
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One vehicle for trading the climate theme is the Invesco Solar ETF. TAN is now one sigma (28%) cheap versus macro fair value on Qi’s model which has a strong (75%) confidence. That FVG has opened up because of a sharp divergence between a stable macro fair value (red line) & sharp fall in the spot price (blue line).
Tan
The model is dominated by two critical drivers. A desire for stronger global growth & ongoing Quantitative Easing from the Fed. In that sense, & in smart beta terms, it reflects elements of both a value play as well as growth. The growth to value rotation has driven some of the profit-taking that has hurt TAN of late, but Qi shows economic growth is a key positive macro driver.

For many, TAN captures two key contemporary themes – climate change, plus President Biden’s infrastructure plans which include a strong element of new environmental technology.

Given the secular shift to green tech, plus the potential cyclical kicker of the reflation trade being juiced by the American Jobs Plan (& assuming no offset from monetary policy), Qi's valuation makes TAN a potentially interesting vehicle.
Casey Horner Rmowqdcqn2E Unsplash
21.04.2021
Re-visiting Reflation:
XLI vs. XLU
This latest pullback in US equities has seen US Industrials move to 0.8 sigma (5.8% cheap) versus Utilities. That’s a one year low for the Qi Fair Value Gap.
See more
Wednesday
Model confidence is strong (80%) & the drivers are intuitive. Industrials outperform in a reflationary, Goldilocks environment – rising inflation & commodity prices, easy financial conditions (especially tight credit spreads) & low risk aversion (VIX).

At this FVG, XLI vs. XLU has discounted a decent amount of bad news. For those who believe this is simply a pause that refreshes the reflation trade, this provides an attractive entry level.

Indeed, since 2009 buying the XLI/XLU ratio at -0.8 sigma FVG (subject to the model being in a macro regime) has produced 20 trades, a hit rate of 85% & an average return of +2.1%.

The one caveat is that macro model value has also edged lower in the last few days. Watching that via the Historical Model Value chart on the Qi portal will help finesse execution levels. The ideal combination is cheap valuation plus macro model value turning higher.
2021 04 18 00 54 50
19.04.2021
Saboteur Looks to the Stars for Quant insight Rebrand
Monday 19 April 2021 - Brand studio Saboteur has unveiled a radical new rebrand for financial data company Quant Insight.

Quant Insight (Qi) is an innovative and unique provider of financial market analytics. Mathematical models from the science of astrophysics are used to decode the massive torrents of macro data that flood through the financial markets every minute of every day. It’s an inspired move – astrophysics is the art of finding patterns and connections in complex systems with billions of moving parts. So what happens if this science is applied to the financial markets?
It is, like all great ideas, brilliantly simple.
It’s a radical approach that demanded a radical new design.
See more
Mahmood Noorani , the founder and CEO, knew that he wanted something different. He wasn’t sure what it was, all he knew what that it had to be something that he hadn’t seen before.

And he isn’t afraid of new ideas. He was the one who approached Michael Hobson, Professor of Astrophyics at Cambridge and world-famous in his field, with the idea that they explore the financial markets together.
As a result, the "Look up™" brand was the strategic heart.


Mahmood Noorani, CEO, Quant Insight, said: “When astrophysics is applied to financial data, something extraordinary happens. You can see patterns where others often find confusion and you can make precise and accurate decisions instead of relying on ‘educated’ guesses.
"We needed a brand redesign that could capture and reflect the way we are pushing boundaries in the financial data world. Saboteur was able to see our vision and have translated our complex world into something eye-catching, brave and elegant. A brand redesign which is out of this world. It also brings clarity to a world which is overloaded and clouded with data."

Alex Clegg, The Dreaming Saboteur, said: “The financial sector is instinctively conservative. “Websites can look like they were designed in Excel – Quant Insight were clear from the beginning that they wanted their brand to be as different as the pioneering technology they’ve created.
“Elements float and drift in a seemingly random fashion. But, of course, there is pattern here. All you have to do is look up.”



About Quant insight
Quant insight provides global investors with unique insights and quantitative financial market analytics to help performance. Solutions are delivered through a range of products for easy implementation by investment managers, hedge funds, quant/systematic teams, portfolio managers and risk officers.


For further information, please contact:

Stephen Baldwin
sb@quant-insight.com
Qi Pr 20210412 4
Nasa Rtzw4F02Zy8 Unsplash
19.04.2021
What's happening with US bond yields?
Short covering. Japanese buying at the start of their new fiscal year. Safe haven demand. The usual guessing game to explain the sharp move lower in US Treasury yields is well underway.
See more
There is a surfeit of back-fitted narratives trying to align a story with price action. Instead Qi offers a 10y UST model that has a 95% degree of confidence & which currently shows yields as 0.5 sigma (16bp) low versus fair value. This latest move doesn’t look consistent with macro fundamentals.
Monday
Flows can dominate in the short term but the key macro drivers have strong explanatory power. Tight credit spreads & higher inflation expectations equate to higher yields & between them account for 30% of model confidence. Crude oil is, by some margin, the biggest single driver. Bond yields’ sensitivity to oil has risen sharply since early Feb.
Monday2
Less obvious is the negative relationship with global economic growth; a pattern which emerged over March & runs counter to conventional thinking. It could reflect bond yields as a measure of US fiscal policy. Bad economic news results in a bigger fiscal response, & hence higher bond yields. Viewed in that light, the recent strong run of US data has reduced the likelihood of further fiscal stimulus, & thereby reduced the upward pressure on US yields.

Fitting a narrative to explain price action is inherently a subjective process. The quantitative pattern may not be immediately intuitive but is transparent, updated in real time & often the ‘explanation’ arrives after the fact.
Nasa Hi5Dx2Obas Unsplash
15.04.2021
Copper - the pause that refreshes
After a huge rally over 2020, Copper has paused for breath over the last few months.

Critically though, macro fair value has not deteriorated. Model confidence remains high & tracking GDP growth for US, China, Europe & Japan remain the dominant drivers. Dr Copper retains its role as a bellwether for the global economic cycle.
See more
Thursday
From a macro perspective, that period of consolidation never saw a deterioration in fair value. Qi’s model value (red line) tracked sideways. The fall in spot price (white) took it to 0.5 sigma (6%) cheap to macro at the start of this month.

Now, after a bullish report from a US bulge bracket Investment Bank yesterday, spot is starting to rally once again.

Still, for believers in a copper super cycle, the metal still trades cheap to macro-warranted model value. 0.3 sigma is 3.4% below model.

Aside from green / EV dynamics, Dr Copper remains a global growth play. Global GDP growth accounts for nearly a third of model explanatory power. A model which has 90% confidence currently.
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