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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 down 0.1% over the past week, with equity models down 0.5% WoW, FX models down 0.4% WoW and rates models up 0.6% WoW.
- Momentum models are down in aggregate over a three-month timeframe, with all models down and equity models the best performing (-1.1%).
Market Implications
- Momentum models have flipped from modestly bullish to modestly bearish USD/JPY – after the BoJ rate hike this week, we expect another rate hike in December and remain short JGBs.
Latest Signals
Equity momentum model signals have shifted very slightly from the previous week. Momentum models remain modestly bullish the S&P 500, and Nikkei, very bullish the Dax, and have flipped from slightly bearish the FTSE to slightly bullish. (Chart 1).
Rates signals have also shifted from last week – signals in the US 5Y and 10Y futures are unchanged (both modestly bullish), although the long bond flipped from slightly bearish to slightly bullish. Outside US rates, the JGB signal is less bearish than previously, gilts are less bullish, and bunds are unchanged at max bullish.
In her FOMC Review, Dominique noted that although Powell was more receptive to a September cut than she had expected, the Fed Chair set out conditions unlikely to be met by then. We still expect one 2024 cut in November or December, against market expectations of three cuts.
Turning to FX, model views have shifted slightly as well – USD/JPY flipped from modestly bullish to modestly bearish. Signals in EURUSD and GBP/USD both remain unchanged (modestly bullish and max bullish, respectively), and USD/CAD’s very bullish signal is also unchanged (as is EUR/NOK). The NZD/USD signal remains the same at max bearish, and AUD/USD is more bearish this week. EUR/CHF and EUR/SEK have flipped from modestly bullish to modestly dovish.
Model Performance
- Momentum models were down 0.1% over the past week, with equity models down 0.5% WoW, FX models down 0.4% WoW and rates models up 0.6% 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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(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.)