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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.
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
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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.
See more
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.
See more
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.
See more
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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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.
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.
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
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.
See more
Most GBP fx crosses are close to macro model value. Of those in regime, only the GBPCHF model is more than 0.5 sigma away from macro fair value (0.7 sigma, 2.2% cheap to model). But, in terms of stress testing different BoE policy announcements, which crosses are likely to react to a taper tantrum style scenario?
Gbpsek
BoE QT expectations are now the biggest single positive driver for GBPSEK (chart above). There is no valuation edge, the cross is at macro fair value. The percentage impact is similar for EURGBP but this time there is a small valuation edge with the Euro 0.4 sigma (0.9%) rich to model. Both offer relatively efficient vehicles for any hawkish BoE surprise.

Note also nominal interest rate differentials feature as strong drivers in both models. A hawkish BoE that shocks UK rates higher relative to Euro/Krona rates would add further impetus to Sterling upside.

Cable is at fair value & this time sensitivity runs in the opposite direction. Ongoing QE is a marginal plus for the Pound.
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
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.
See more
Nky1
Yesterday’s sell-off in the US has generated some upside in the Nikkei 225 / S&P500 ratio & that has triggered a momentum buy signal on Qi RETINA™. On our metrics the NKY / SPX ratio looks oversold. The FVG entry level is now less extreme but the downtrend was stretched & is starting to show signs of turning.

RETINA™ aligns macro valuations with trend/momentum dynamics.
Nky2
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.
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.
See more
Useurope
For those who believe that the European vaccination programme has turned a corner & can trigger a broader re-opening phase, this looks an interesting entry level.

Since 2009, buying dips at a -0.7 sigma Fair Value Gap (when in regime) has produced a 65.6% hit rate for an average return of +0.62%. There have been 32 such instances &, on average, it’s taken 17 business days to close the FVG.

Europe outperforms in a global cyclical upturn. Rising commodity prices, higher inflation expectations in both the US & Europe are consistent with the SXXP/SPX ratio going up. The ratio wants tight credit spreads & lower EURUSD fx, but also is positively sensitive to Central Bank Quantitative Tightening expectations. That suggests it is relatively protected in another taper tantrum style scenario.
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.
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