Momentum Models Bearish S&P 500, Bullish EUR/USD

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 model returns were mixed over the past week: oddly positive for equities (+0.4% WoW), flat for FX, and negative for rates (-0.2% WoW).
• Performance is poor over a longer horizon: equities (-3.5%) and rates momentum models (-1.5%) registered negative returns, larger than the positive returns delivered by FX momentum models (+0.3%).
• Since our last update, momentum models have turned more bearish on the S&P 500, less bullish on the FTSE-100, more bullish on JGBs, less bearish on bunds, and more bullish on EUR/USD.

Latest Signals

Equity momentum models turn further bearish on the S&P 500 while remaining net-bullish on the Nikkei, DAX and FTSE-100 (Chart 1 and Table 1).

Meanwhile, rates momentum models have turned more bullish on JGBs, pared Bund net-bearishness, and remained most bearish on Gilts.

Within FX, momentum models have increased EUR/USD and pared EUR/SEK net-bullishness (Chart 2 and Table 2).

Model Performance

Momentum models registered an odd week of positive returns for equities (+0.4% WoW), doing little to budge negative performance over the past three months (-3.5%). They underperformed in rates (-0.2% WoW) and were flat in FX (+0.0% WoW), the latter being the only asset to experience positive returns over the past three months (+0.3%).

Our Views

25bp hikes are all the fashion. The Federal Reserve (Fed) took the upper bound to 5.25%, in line with 97 of 104 of those on Bloomberg, while the European Central Bank (ECB) and Norges Bank followed suit a day later.

On the details, Dominique concludes that the Fed’s economic assessment was unchanged, and that Fed Chair Jerome Powell failed to rule out a June hike and sees financial instability impacting Fed policy through a credit crunch, if at all. As it stands, based on current growth and inflation dynamics, Dominique expects a June hike barring a debt ceiling crisis.

Turning to Europe, the ECB’s decision proved dovish versus Henry’s expectations with the statement surprisingly doubling down on March forecasts. And with the Swiss National Bank continuing to match ECB moves, CHF dips will prove a buying opportunity. Norges were more hawkish in their 25bp hike.

*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).

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.)