Asia | Emerging Markets | Equities | FX | Global | UK
Summary
- Rates momentum models (+0.4% WoW) outperformed FX and equity momentum models (-0.1% WoW) over the past week.
- Rates momentum models are the best-performing models over a three-month time frame (+3.4%). FX (+0.6%) followed while equity (-3.0%) struggled.
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When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.
Summary
- Rates momentum models (+0.4% WoW) outperformed FX and equity momentum models (-0.1% WoW) over the past week.
- Rates momentum models are the best-performing models over a three-month time frame (+3.4%). FX (+0.6%) followed while equity (-3.0%) struggled.
Market Implications
- Momentum models turned bearish on UK equities and rates. However, Henry sees value in being long the front-end of the UK curve.
- They remain bullish on USD, we remain long USD vs EUR, GBP and CHF over the medium-term. They also agree with our long EUR/CHF trade.
Latest Signals
Equity momentum models flipped bearish on the FTSE-100, which means it has the same signals across the S&P 500, Nikkei and DAX, too. However, hedge funds are positioned for Nikkei outperformance.
Meanwhile, rates momentum models have flipped heavily bearish on Gilts. However, on a strategic front, Henry and RIchard see value in owning the front-end of the curve, receiving February 2024 MPC-Dated SONIA (target: 0bp) and being long the March 2024 SONIA future (target: 94.80).
Turning to FX, momentum models have moved heavily bullish EUR/CHF which aligns with Ben and Richard’s long EUR/CHF trade, and flipped bullish EUR/SEK though Ben advises to wait to enter that trade. Elsewhere, they flipped bullish NZD/USD and heavily bullish USD/CAD. On the former, Ben favours watching for a bottom in AUD/NZD while he prefers to not chase the latter and instead find room to fade this run in CAD weakness vs AUD and NZD. Overall, signals remain bullish on USD but have room to turn heavily bullish (Chart A). In the near-term, we think USD momentum can fade, but in the medium-term we remain long USD vs EUR, CHF and GBP and long USD/INR but have closed long USD/TWD.
Model Performance
Rates momentum models (+0.4% WoW) registered the best weekly performance for the third week running with FX and equity momentum models (-0.1% WoW) both registering losses this week. They hold top spot over the past three months, too (+3.4%). FX momentum models (+0.6%) registered a positive return over the period while they performed poorly in equities (-3.0%).
*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).