• Bund signals less certain on higher yields as they are elsewhere.
• All equity lookback models signals are ‘buy’.
• The best performing bond and equity models over the past three months have been the 12-month lookback for the US 5-year (1.6%) and the three-month lookback model for the S&P500 (8.8%).
The US dollar sold-off over the past week, with yields stable after the sharp run-up at the start of the year.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
- Bund signals less certain on higher yields as they are elsewhere.
- All equity lookback models signals are ‘buy’.
- The best performing bond and equity models over the past three months have been the 12-month lookback for the US 5-year (1.6%) and the three-month lookback model for the S&P500 (8.8%).
The US dollar sold-off over the past week, with yields stable after the sharp run-up at the start of the year. US inflation, at 7.0% YoY, was in line with consensus and with four hikes already priced for the Fed this year the dollar has lost ground. Equities regained strength in recent days after the earlier weakness. In Canada, the loonie strengthened, with oil reaching year-highs while rates markets are less certain of a March hike from the Bank of Canada, although the probability still sits above 50%. In contrast, futures price more than a 90% chance of a Federal Reserve hike in March. On this backdrop, bond models see two new ‘sell’ signals while equity model signals remain ‘buy’.
Latest Signals
Two changes to our bond lookback model signals (Chart and Table 1). Signals flip to ‘sell’ for the three-month lookback for JGBs and long gilts. The only ‘buy’ signal comes from the three-month lookback model for bunds. Bond models are net ‘sell’ (Chart 1).
All equity lookback models maintain ‘buy’ signals (Chart and Table 1).
Best Performing Models
Looking at the performance of the best models over the past three months, we find the following:
- Bonds: The best-performing bond model is the 12-month lookback for the US 5-year. It has delivered 1.6% over the past three months and is currently signalling ‘sell’ (Table 1, Chart 2).
- Equities: The three-month lookback model for S&P500 delivered 8.8% over the past three months. It currently signals ‘buy’ (Table 1, Chart 3).
*The basic strategy is to use returns (lookback windows) to give buy/sell signals. So, if the US stocks are up over the past 3 months, you buy, otherwise you sell (note I use excess returns).