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1.AI Premium Fades, Macro Discount Still Missing

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Recent US equity weakness has been narrow, not broad. SPY is down around 3% from peak, but equal-weight S&P is only off 1.5%. QQQ is down 4.3% from its June high - a leadership correction, not a broad equity unwind.

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Qi had already flagged the risk. From mid-May, SOXX and QQQ started to screen rich versus SPY as AI/tech narratives took hold. That relative exuberance has now faded. But the key point is this: Qi model value is broadly neutral to spot.

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So, the premium has compressed, but a macro discount has not opened up.

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The macro factor mix also matters. SOXX and QQQ still want a benign backdrop: flatter 5s30s, tighter credit spreads, lower risk aversion and firmer inflation expectations.

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It wants “reflation without stress” — resilient nominal growth, easier financial conditions and contained volatility.

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Bottom line: tech led the squeeze higher, and tech is leading the correction. The AI premium has been reduced, but these assets are not yet cheap to macro.

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2. Fading Warsh – 2y Notes

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The sharp rise in 2y US Treasury yields since last week’s FOMC has opened a +2 sigma Fair Value Gap on Qi. The market read Warsh as hawkish & re-priced, but Qi puts macro-warranted fair value around 3.70% thanks mainly to the fall in inflation expectations.  

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If your Fed watching conclusion is Warsh leans hawkish, this signal can safely be ignored. Just be aware macro relevance is high (65%) &, over the last 9mths, the correlation between spot 2y yields & Qi’s FVG is very strong suggesting the mean reversion has occurred via the market re-pricing to macro conditions.

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3. Fading Warsh – EURUSD

It’s the same story in FX. Warsh’s perceived hawkishness has sparked a broad Dollar rally. In the case of EURUSD, spot now sits 2.1 sigma below Qi model fair value – one of the biggest negative FVGs on record.

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Model value is moving lower thanks mainly to rate differentials (higher UST yields) but the sell-off in spot has overshot the re-pricing in bond markets.

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Again, if you believe the Fed’s reaction function will prioritise price stability over economic growth, you will overrule a quantitative based signal. Wait for PCE today – a strong print will emphasize the hawkish narrative.

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But, for anyone anticipating a soft PCE number or if you think the initial hawkish read of Warsh is misplaced, then be aware macro is suggesting US Treasuries & the Dollar have travelled a fair way already.

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