Momentum Models Cut Bearish Rates Exposure, Reduce USD Longs and Increase Equity Bullishness

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 were down -0.4% over the past week, with equity models up +0.3% WoW, FX models down -0.3% WoW, and rates models down -0.9%.
• Momentum models are up +0.4% in aggregate over a three-month time frame, with FX models the best performing (+0.8%).

Market Implications

• Momentum models have reduced USD bullishness. We remain short USD versus a EUR, JPY and CAD basket.

Latest Signals

Equity momentum model signals increased equity bullishness. The S&P 500, DAX and FTSE signals remain unchanged at very bullish. The Nikkei flipped to modestly bullish from modestly bearish (Chart 1).

Rates momentum model signals are less bearish, with bunds the standout shift. Signals in the US 5Y, 10Y, and long bond, together with the signal in gilts, all shifted from very bearish to modestly bearish. The bunds signal was the biggest shift, flipping from very bearish to very bullish. JGBs were unchanged, remaining very bearish (Chart 1).

FX momentum models are less bullish USD, with several shifts. EUR/USD, AUD/USD and NZD/USD remain unchanged (modestly bearish), with GBP/USD shifting to modestly bearish from very bearish. Perhaps most notably, USD/JPY shifted to modestly bearish from modestly bullish. USD/CAD is modestly bullish after being very bullish. In the EUR crosses, EUR/CHF is now modestly bullish (from very bullish), EUR/SEK flipped to modestly bearish from modestly bullish, and EUR/NOK remains unchanged (modestly bearish, Chart 2).

Model Performance

• Momentum models were down -0.4% over the past week, with equity models up +0.3% WoW, FX models down -0.3% WoW, and rates models down -0.9%.

*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).

(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.)