1. From Tariff Capitulation to Good News is Good News

With tariffs seemingly capped—this weekend’s US/China talks suggest 30% is more likely the ceiling than the floor—markets are shifting focus. Qi's model for SPY shows economic growth now becoming an increasingly important positive driver. The sensitivity is at the upper end of its historical range.

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At the index level, we note this is a particular focus for IWM (Small Caps). The IWM / SPYratio is closely tracking the Citi US Economic Surprise Index.

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2.  US Dollar - the importance of being tactical

Equities are now up on the year but, in FX, the Dollar is not enjoying the same respite.

Qi's model for the broad Dollar ETF UUP shows model value has risen slightly over May. That's partly due to interest rate differentials moving in its favour given the backup in UST yields. Many will choose to look through that arguing rate differentials have been supplanted by a secular diversification away from the US.

Fair, but Qi alsoshows UUP wants a lower VIX (the Dollar is no longer a safe haven) and aflatter 5s30s yield curve (less Trump chaos premium in long bonds). VIX hasfallen & the curve has flattened in May. These factor moves speak to theDollar diversification theme and, more recently, have supported model value.

Put another way, yes there are strong reasons to think the Dollar is starting a multi-year re-pricing but, tactically, the sell-off looks extended even versus the ongoing"sell America" theme.

3. Bond Market tug of war

Duration is a tough call in 2025 - do you emphasizerecession & rate cuts, or inflation & deficits? Right now, Qi suggests the market’s tilt is with the fiscal hawks as the market digests Trump's"big, beautiful bill".

On Qi, front end yields are close to macro-warranted fairvalue. The move in the long end, however, means 30y yields now sit 1 sigma (28bp)above model value.

The sideways action in Qi model value treading water reflects offsetting macro dynamics:

·      higher inflation expectations have pushed fair value for 30y yields higher

·      but that's been offset by weak economic growth data (NowCasting tracking GDP down to 1%) & rising EuroZone Sov Confidence

·      the current pattern is for tighter EGB peripheral spreads & lower long UST yields to move in tandem - US long bonds are lagging this move in global bonds.

As with the Dollar, there are strong arguments for the bears to latch onto - US deficits / inflation / reduced buying appetite from international buyers. The point here is that to a fair degree some of that news is in theprice.

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4.  Brazilian Equities looking near term stretched

Brazil’s Bovespa has been one of the best performing indices globally YTD, up 15.5% ytd. However, in light of recent US / China trade talks, if China becomes a relatively more attractive trade partner again, Brazil’s substitute advantage will fade –especially for US agriculture and industrial goods.

On Qi, the index ranks as among the most rich to macro-warranted fair value at +1.2 sigma (+4%) above Qi model value. The last year has shown a strong correlation between theQi Fair Value Gap (FVG) and spot price – in other words, we should take note when the FVG is looking over-extended.

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