• Bond models suggest US-Germany divergence.
• FTSE buy signals reduce.
• The best performing bond and equity models over the past three months have been the one-month lookback for gilts (2.4%) and the three-month lookback model for the S&P500 (6.1%).
US equities rallied and USD initially spiked higher following Wednesday’s confirmation of an acceleration in the pace of Fed taper. In Europe, the surprise hike from the BoE saw sterling rally while the euro held up after the ECB confirmed a higher pace of APP purchases once PEPP purchases end. On Omicron, cases are rising sharply and genomic sequencing data from Denmark and the United Kingdom heightens worry over transmissibility.
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- Bond models suggest US-Germany divergence.
- FTSE buy signals reduce.
- The best performing bond and equity models over the past three months have been the one-month lookback for gilts (2.4%) and the three-month lookback model for the S&P500 (6.1%).
US equities rallied and USD initially spiked higher following Wednesday’s confirmation of an acceleration in the pace of Fed taper. In Europe, the surprise hike from the BoE saw sterling rally while the euro held up after the ECB confirmed a higher pace of APP purchases once PEPP purchases end. On Omicron, cases are rising sharply and genomic sequencing data from Denmark and the United Kingdom heightens worry over transmissibility. Markets remain cautious with put-call ratios rising. On this backdrop, bond models see an increase in buy signals while equity models see a reduction.
Latest Signals
Two changes to our bond lookback model signals (Chart and Table 1). Signals flip to ‘buy’ for the 12-month lookback for Bunds, and the three-month lookback for long Gilts. The US 5- and 10-year, and US long bonds are net ‘sell’. JGB, Bunds, and long Gilts are net ‘buy’.
One signal change. The one-month lookback for the FTSE-100 flips to signal ‘sell’ (Table 1). The S&P500, DAX, and FTSE-100 are net ‘buy’ (Chart 1). Nikkei remains net ‘sell’.
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 one-month lookback for gilts. It has delivered 2.4% return and is currently signalling a ‘buy’ (Table 1, Chart 2).
- Equities: The three-month lookback model for the S&P500 delivered 6.1% 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).