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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
- Momentum models were up 0.2% over the past week, with equity models outperforming FX and rates. Stocks were +0.5% WoW, FX was +0.1% WoW, and fixed income was -0.1% WoW.
- FX momentum models are the best-performing over a three-month timeframe (+1.1%).
Market Implications
- Momentum models have flipped bearish to bullish GBP/USD, and bullish to bearish AUD/USD – we have taken profit on our AUD/NZD put spread, and have gone bearish GBP/CAD.
Latest Signals
Equity momentum model signals are unchanged over the past week. The S&P 500 and Nikkei signals remain very bullish, with the DAX and FTSE biases remaining moderately bullish (Chart 1).
Rates momentum models are bearish across the board – they are more bearish the US 5- and 10-yr tenors, less bearish the US long bond (unchanged from last week), remain very bearish JGBs and German bunds and are more bearish UK gilts. After yesterday’s weaker-than-expected US CPI and the FOMC policy update, Dominique still expects no Fed rate cuts in 2024.
Turning to FX, momentum models’ views have shifted slightly – they have flipped bearish to bullish GBP/USD, bullish to bearish AUD/USD, more bearish EUR/USD, EUR/SEK, and EUR/NOK, and remain very bullish USD/JPY. Also, they are more bullish USD/CAD and NZD/USD and remain moderately bullish EUR/CHF (unchanged from last week). We have taken profit on our AUD/NZD put spread, and flip bearish GBP/CAD.
Model Performance
Momentum models were up 0.2% over the past week as stocks were +0.5% WoW, FX was +0.1% WoW, and fixed income was -0.1% WoW. FX momentum models are the best-performing over a three-month timeframe (+1.1%).
(Charts 1 and 2: blue bar is last week’s signal; orange bar is this week’s signal.)
(Charts 3 to 5: orange bars are average returns of CTA model over past three months by asset, black dot is change over the past week).
*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).