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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.
- Momentum models (+0.4% WoW) continued their positive performance, with equity models (+0.8% WoW) leading. FX (+0.4% WoW) and rates momentum model (+0.1% WoW) performance was more moderate.
- Rates momentum models are the best-performing models over a three-month timeframe (+5.2%). FX (+1.1%) followed, while equity (-2.1%) struggled.
- Momentum models remain bearish on UK rates. However, Henry sees value in being long the front end of the UK curve.
- They have flipped bearish on EUR/USD and remain bullish USD/JPY and bearish GBP/USD – biases we agree with.
Equity momentum models have turned heavily bearish on the FTSE-100; they were bullish two weeks ago (Chart 1). They remain bearish on the S&P 500, Nikkei and Dax. John still believes a major selloff is unlikely.
Meanwhile, rates momentum models remain heavily bearish. We share the sentiment in the US. We continue to target 10Y UST yields rising to 5.5%, with best value being long 10Y JGBs vs USTs. Across the Atlantic, 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 flipped bearish on EUR/USD – Bilal thinks it can reach parity this year. Meanwhile, they have turned less bullish on EUR/SEK, though Ben reiterates EUR/SEK will break 12 before a likely sharp reversal in H2 2024. They also turned less bearish on NZD/USD – Ben finds reason to be long Antipodean currencies versus the European majors. Elsewhere, signals remain heavily bullish USD/JPY – Bilal sees 5 reasons USD/JPY will reach 155 before 145 and thinks a potential October BoJ ending of YCC wouldn’t change this. They also remain bearish on GBP – Ben and Richard are short GBP/USD and GBP/CAD, having added to the trade, and long EUR/GBP.
Momentum models (+0.4% WoW) performed well over the past week as equity models took charge (+0.8% WoW; Charts 3-5). However, they remain the worst performer over the past three months (-2.1%). Rates momentum models are the best performer (+5.2%), while FX models are second best (+1.1%).
*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).
Ben Ford is Researcher at Macro Hive. Ben 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.
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.