Momentum Models Continue to Underperform

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 (-0.5% WoW) added to last week’s losses, with rates (-1.2% WoW) leading.  FX momentum models (-0.1% WoW) registered smaller losses.
• Rates momentum models are the best-performing models over a three-month timeframe (+2.1%). FX (-0.1%) and equity (-1.4%) struggled.

Market Implications

• Momentum models flipped bullish on Gilts, in line with Henry’s view to receive near-term SONIA futures. They also flipped bearish on GBP/USD; Ben and Richard expect GBP to underperform EUR.

Latest Signals

Equity momentum models increased Nikkei bullishness as the index broke 32,500 (Chart 1). Elsewhere, they remain bearish on the S&P 500 and DAX, and heavily bearish on the FTSE-100.

Meanwhile, rates momentum models flipped bullish on Gilts, in line with Henry’s bias to receive near-term SONIA futures. He also sees value in a SONIA vs SOFR Mar24/Mar25 calendar box spread and 2s10s GBP steepeners vs EUR, while his PCA model now flags 5s30s GBP steepening and a 5s10s30s UKT decline.

Turning to FX, momentum models flipped bearish on GBP/USD – Ben and Richard remain long EUR/GBP – and turned heavily bearish on AUD/USD as it reapproached the 0.64 level. Meanwhile, they pared EUR/SEK bullishness as risk appetite improved – Ben still expects EUR/SEK to trade north of 12 before its likely descent in H2 2024. Lastly, they remain heavily bullish USD/JPY, though we note that the MoF will likely get their way.

Model Performance

Momentum models (-0.5% WoW) continued to underperform as rates (-1.2% WoW) led a poor week across the board. FX momentum models (-0.1% WoW) registered the least negative contribution. However, over the past three months, rates momentum models (+2.1%) are the only positive performer.

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.)