Momentum Continues Positive Performance

When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.

Summary

• Momentum models delivered a second consecutive week of positive returns, with strong performance in rates and equities leading those in FX.
• However, returns remain far better in the FX carry strategies we follow YTD.
• Equity momentum model signals have become more bullish, while rate signals have become more bearish. In FX, momentum models have turned more bearish on NZD and flipped net-bullish on USD/CAD.

Latest Signals

Momentum model signals on the FTSE-100 are now all bullish, in line with that of the Nikkei and DAX (Chart 1 and Table 1). The S&P 500 is the only equity index we look at with one of its models (12-month lookback model) still signalling ‘sell’.

Momentum models for 5Y USTs are now all bearish after the one-month lookback model flipped to signal ‘sell’. Other signals are unchanged.

Momentum models shifted more bearish on NZD/USD and flipped long USD/CAD (Chart 2 and Table 2). Meanwhile, they remain bullish on USD/JPY, EUR/SEK and EUR/NOK.

Model Performance

Momentum models performed well (+0.6% WoW) across all three asset classes over the past week. Performance over the last 3-months has been more mixed – with EUR/NOK and Gilts the stand-out performers, while FTSE-100 has been the biggest underperformer.

Our Views

Markets continue to price Federal Reserve (Fed) easings by year-end with falling inflation, decelerating wage growth, and a cautious Fed economic outlook doing little to deter the view. Richard believes that rallies in both US 2Y yields and the USD (vs EUR) provide good entries to fade the move.

Across the pond, the data the Bank of England (BoE) will likely need to keep hiking. A loosening labour market is doing little to dampen very strong wage growth, while core inflation pressures remain persistent.  Henry expects the BoE to hike by 25bp in May and June.

*The basic strategy is to use returns (lookback windows) to give buy/sell signals. So, if the US stocks are up over the past three months, you buy, otherwise, you sell (note I use excess returns).

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Ben Ford is a Researcher at Macro Hive. Benjamin studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.

Photo Credit: depositphotos.com

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)