Momentum Models Bearish S&P 500, JGBs and $-Bloc

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 add to last week’s fortunes, performing best in rates (+0.8% WoW) and rates (-0.9% WoW).
• A similar sized returned was seen over the past three months, on average (+0.2%).
• Momentum models point towards US equity underperformance, with European equivalents expected to hold up. Rates are expected to sell off and the $-bloc weaken (vs USD).

Latest Signals

Equity momentum models have turned bearish on the S&P 500, down 4.5% from its 2023 peak and trading back below 4,000 (Chart 1 and Table 1). They turned net-bearish on the Nikkei and remained bullish on European equities (DAX and FTSE-100).

Momentum models are bearish on US, UK, German and Japan rates without a bullish signal in sight.

FX momentum models turned intensified their $-bloc (AUD, CAD and NZD) bearishness (vs USD; Chart 2 and Table 2).

Model Performance

Momentum models clipped higher (+0.2% WoW), adding to last week’s gains. They performed best in rates (+0.8%) and worst in equities (-0.9%), and marginally well in FX (+0.2%). A similarly sized return was seen over the past three months (+0.2%).

Our Views

Countervailing narratives for the EUR/USD have led to whippy price action and sharp moves. As of late, Federal Reserve minutes provided limited incremental information, meaning the March meeting will be data driven. Dominique continues to expect a 25bp hike but sees risk of a larger move, with her 8% terminal view still intact. Meanwhile, final January Eurozone core inflation came in at 5.3% YoY, a marginal upside surprise to consensus expectations (5.2%). The details are more hawkish, though. The breadth of inflation has risen back up, 11/12 sectors rose faster than typical for the month. Looking forward, the ~1.05-1.10 range established so far this year will probably hold in the coming weeks, meaning that we favour fading the extremes in this range.

*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.)