Momentum Models Flat for Second Week as Equities Outperform Rates and FX

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 flat over the past week, with equity models up 0.5% WoW, rates flat WoW and FX down 0.2% WoW.
• All momentum models are down over a three-month timeframe, with FX models the best performing (-0.1%).

Market Implications

• Momentum models are less bearish GBP/USD and have flipped from slightly bullish to slightly bearish USD/CAD.
• This week, our GBP/CAD position has performed well, and further downside can be expected.

Latest Signals

Equity momentum model signals have shifted slightly over the past week. The S&P 500 and Nikkei biases (both very bullish) are unchanged, the DAX has flipped from slightly bearish to slightly bullish, and the FTSE signal has gone from very bullish to slightly bullish (Chart 1).

Rates momentum models have also shifted a bit – momentum signals across the curve in US rates are all slightly bearish, and JGB signals have shifted from slightly bearish to very bearish. Meanwhile, bunds have flipped from slightly bullish to slightly bearish, and gilts have flipped form slightly bullish to very bearish. Sam’s US Payrolls Model predicts another upside surprise, while Dominique’s Fed Monitor reiterates her view that the Fed will not cut rates in 2024.

Turning to FX, model views have shifted slightly as with equities and rates. While EUR/USD signals remain very bearish and USD/JPY very bullish, GBP/USD has gone from very bearish to slightly bearish, EUR/CHF has flipped from slightly bearish to slightly bullish and USD/CAD from slightly bullish to slightly bearish. AUD/USD remains slightly bullish, NZD/USD remains slightly bearish, EUR/NOK is still very bearish, and EUR/SEK is now slightly bearish after being very bearish previously.

Model Performance

• Momentum models were flat over the past week, with equity models up 0.5% WoW, rates flat WoW and FX down 0.2% WoW.

*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).

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Richard Jones writes about FX and rates markets for Macro Hive. He has traded and invested in interest rate and FX market portfolios spanning three decades, both on the buy-side and sell-side.

(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.)