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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.
10.11.2021
Inflation hedges
US CPI day. Mainstream media / research will debate whether today’s release conforms to a transitory or sticky inflation outlook. Most will already have an entrenched view on that &, as such, will argue the Fed are behind the curve or on the cusp of crashing the economy.
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Cameron Venti Xkcaeep4Ui4 Unsplash
09.11.2021
China contagion?
It is no longer an idiosyncratic story about Evergrande. Other Chinese property firms such as Country Garden, Vanke & Sino Ocean are now feeling the pressure too.
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Reid Zura Rijrunzf8Nc Unsplash
08.11.2021
Travel opens up
Transatlantic flights resume today marking a major step in the return to long haul travel. How does the global airlines sector look from a macro perspective?
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04.11.2021
Decision day at the BoE
A look at Sterling fx as we head into today’s finely balanced BoE rate decision.
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Aaron Burden Nxt5Prob 7U Unsplash
02.11.2021
Fade the yield curve?
Yield curves have flattened aggressively of late. Not just in terms of the size of the move, but in the scope – it has been a global phenomenon. That has created a lot of pain for investors who held curve steepening positions predicated on Central Banks that, until last month, were describing inflation pressures as transitory.
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Adam Birkett 77Hmm5Tg N4 Unsplash
02.11.2021
Go Green
Several of Qi’s ESG models focused on the environment have moved into rich territory. The spike in traditional energy costs, plus hopes the Biden infrastructure deal boosts investment in clean energy have been useful tailwinds.
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Daoudi Aissa Pe1Ol9Olc4O Unsplash
01.11.2021
(Don't Fear) the Taper
The Fed meet this week but Quantitative Tightening is fully priced & seemingly poses no threat; the focus has moved on to when Central Banks hike interest rates. That seems to be the main market narrative at least.

On Qi, two risky assets stand out with a potentially dangerous mix – rich on macro valuations & highly reliant on ongoing Quantitative Easing.
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Hs 2009 25 Hubble
29.10.2021
Qi Credit Impulse
Qi’s credit impulse suggests global markets are experiencing a sharp tightening in financial conditions. That is true for all, but especially in the US, Europe & UK.


Measures of credit impulse & financial conditions are not new. Several versions exist, all with subtle variations in the indicators they include & the methodology employed to calculate them.
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Lucas Sankey Gdq Az6Cspo Unsplash
28.10.2021
Bullish but scared
Bullish US equities but nervous about big tech?
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Guillaume Perigois 0Nrkvdda2Fw Unsplash
28.10.2021
ECB day
It’s a particularly important ECB meeting. Just 3 months ago they announced a dovish policy pivot. Yet the new policy guidance hasn’t spared Europe from a sharp re-pricing in rate expectations - money markets are now discounting earlier ECB rate hikes.
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Cameron Venti Xkcaeep4Ui4 Unsplash
09.11.2021
China contagion?
It is no longer an idiosyncratic story about Evergrande. Other Chinese property firms such as Country Garden, Vanke & Sino Ocean are now feeling the pressure too.
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The jury is still out on whether this represents contagion amongst real estate companies alone; or whether the sheer size of the property sector means stress here has broader ramifications for the Chinese economy.

For now, most financial ‘tourists’ following the story use ETFs like AHYG – the iShares USD Asia High Yield Bond ETF. On Qi, AHYG is in a strong macro regime (87% model confidence) & there is no Fair Value Gap – the market is moving in line with macro fundamentals.
Tuesday
The standout feature though is macro-warranted model value. The red line is still trending lower. If anything, the downtrend appears to be accelerating.

AHYG may not currently offer any tactical valuation edge (Qi Fair Value Gaps highlight dislocations & therefore trading opportunities) but, for now, the combination of key factors like Chinese GDP growth, commodity prices, real rates, inflation expectations, the Dollar & risk aversion all continue to point to a deteriorating macro environment.

What could prompt a change in trend? The obvious candidate is a policy response - official credit stimulus would impact several of the key drivers above. Absent that, the current patterns suggests the macro outlook remains bleak.
04.11.2021
Decision day at the BoE
A look at Sterling fx as we head into today’s finely balanced BoE rate decision.
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What is evident looking at the GBP fx watchlist below, is that GBP is generally cheap versus its peers relative to the macro environment. Looking at the key drivers on the right it is also evident that interest rates are a key driver of Sterling once again.
Thursday
Several GBP fx crosses have experienced sharp falls in model confidence of late. EURGBP for example has fallen 18% in the last 2 weeks & now sits at 53%. The equivalent numbers for GBPAUD are -17% to 58% now.

Of those in regime, interest rate differentials are the key driver of GBPSEK & GBPJPY. All else equal, higher nominal UK yields versus Swedish & Japanese yields will be GBP positive. The latter though is close to fair value; it is GBPSEK which presents a valuation edge being 1.9 sigma (2.2%) cheap to model.

Moreover, BoE QT expectations is the biggest single driver of GBPSEK & the relationship is positive. Ending QE early (currently slated for December) could provide the cross with a significant boost. Combining a rate hike with early QT is a powerful combination for GBPSEK in particular.

The regime is different for cable – real yields matter more than nominal rates, but it also emphasises domestic GDP growth & commodity prices.

It is cheap (-0.7 sigma, -0.8%) but whereas Sterling bulls buy GBPSEK for a hawkish BoE policy response, they should buy cable if bullish on the UK economy. Put another way, a BoE policy error has the potential to hurt cable more.
Adam Birkett 77Hmm5Tg N4 Unsplash
02.11.2021
Go Green
Several of Qi’s ESG models focused on the environment have moved into rich territory. The spike in traditional energy costs, plus hopes the Biden infrastructure deal boosts investment in clean energy have been useful tailwinds.
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More recently, a huge rally in US renewable energy company Enphase has added additional momentum. It rose 25% last week after strong earnings & new product innovation. ENPH is now almost 30% rich to macro fundamentals but model confidence has fallen sharply – the idiosyncratic news about their new solar microinverter trumps the influence of macro right now.

Enphase is a major holding for several thematic ETFs. It constitutes 12.4% of the Invesco Solar technologies ETF TAN & 8.7% of iShares Global Clean Energy ETF ICLN.

Both ETFs are approaching 2 sigma (~20%) rich to macro model value in outright terms. They are also outperforming their peers & the broader market. Both TAN vs. SPY and ICLN vs. XLE are almost 1.5 sigma rich to model. All four models are in regime & show fair value moving sideways. The latest rally has moved clean energy ahead of macro fundamentals.
Tuesday3
Moreover, it is not just a US phenomenon. The outperformance of the FTSE Environment Opportunity Asia Pacific index versus the standard FTSE Asia index can be seen in the white line above. But macro-warranted model value (the red line) is deteriorating; hence a +1.8 sigma (+3.6%) Fair Value Gap on Qi.

COP26 could deliver a significant policy shift that fundamentally moves the goalposts for clean energy. Absent that, & from a tactical macro perspective at least, it seems late to be chasing the move here.
Hs 2009 25 Hubble
29.10.2021
Qi Credit Impulse
Qi’s credit impulse suggests global markets are experiencing a sharp tightening in financial conditions. That is true for all, but especially in the US, Europe & UK.


Measures of credit impulse & financial conditions are not new. Several versions exist, all with subtle variations in the indicators they include & the methodology employed to calculate them.
See more
Image 2
Qi includes a range of factors in our models that speak to the ease of obtaining credit, the availability of liquidity & overall financing levels. They include:
  • Investment grade & high yield credit spreads
  • Central Bank rate expectations (STIRT calendar spreads)
  • Central Bank QT expectations (interest rate volatility)
  • the availability of US Dollar liquidity (cross-currency basis swaps)
  • the level of real yields
  • the shape of the yield curve
  • currency strength in TWI terms
All are in z-score terms, showing how far each factor is from its long term trend. They are simply aggregated together & then the mean displayed here with a lower (higher) number pointing to tighter (easier) credit conditions.

In absolute terms, several of these indicators will have been significantly tighter in the past. However, in terms of the rate of change relative to trend, markets are experiencing a sharp squeeze in credit. Historically, such moves are not friendly for risky assets.
Guillaume Perigois 0Nrkvdda2Fw Unsplash
28.10.2021
ECB day
It’s a particularly important ECB meeting. Just 3 months ago they announced a dovish policy pivot. Yet the new policy guidance hasn’t spared Europe from a sharp re-pricing in rate expectations - money markets are now discounting earlier ECB rate hikes.
See more
Do markets not believe the ECB’s dovish forward guidance? Or, do they believe it, but simply think it will be overwhelmed by supply bottlenecks & rising inflation?

If you believe Lagarde stresses the ECB’s dovish policy stance & bond markets react by continuing to push break-evens higher & real yields lower, then short EURUSD is the better trade. Real yield differentials remain the key driver of the cross according to Qi where model confidence is 82% & spot is modestly (0.3 sigma, 0.4%) rich to macro.
Thursday
Meanwhile EURJPY is driven by a more nuanced combination of nominal rate differentials & risk appetite. A hawkish pivot by Lagarde that, relatively speaking, raises nominal European yields would, all else equal, drive EURJPY higher.

If that prompted a ‘risk off’ move, with VDAX a negative driver, rising risk aversion would negate that & depress model value. But, if equities interpret that as the ECB being pre-emptive & ahead of the curve, & Euro Stoxx rally / VDAX falls, then that’s a powerful combination for a long EURJPY position. Currently EURJPY is bang in line with model fair value.

By identifying the regime & specific drivers of different Euro crosses, Qi can provide a roadmap for the different scenarios investors are considering for today’s ECB meeting.
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