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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 positive performances in fixed income and equites countering negative FX returns. Equities and bonds were both up 0.5% WoW, while FX returns were -0.1%.
- Equity momentum models remain the best-performing model over a three-month timeframe (+3.4%).
Market Implications
- Momentum models are very bearish EUR/USD and bullish USD/JPY. We remain short a EUR basket and are on the lookout for official JPY intervention.
Latest Signals
Equity momentum models are unchanged across the board, with moderate long exposures for the S&P500, Nikkei, Dax and FTSE (Chart 1). John says markets will forget the recent tech sell-off as a flood of earnings and economic reports provide new information about corporate health and likely Fed policy in coming months.
Rates momentum models remained strongly bearish across all bond contracts. Antonio argues that although recent Fed communications are consistent with two 2024 cuts, short-term data will likely remain strong. This presents two risks: the next SEP shifts from a median of three cuts to one in 2024 (instead of two); Fedspeak opens the door to hikes.
Turning to FX, momentum models remain mostly unchanged: strongly bullish USD across the board, bullish EUR crosses, and very bullish EUR/CHF and EUR/SEK. They turned increasingly bullish EUR/NOK. Ben argues that although EUR/CHF is a buy-on-dips, near-term downside risk remains in the pair. We are short a EUR basket and watching for official JPY intervention.
Model Performance
Momentum models rose 0.2% over the past week as a +0.5% showing WoW from both bonds and equities bettered a -0.1% WoW performance from FX. Equities momentum models are still the best-performing model over the past three months (+3.4%), with rates (+1.8%) and FX (+1.4%) also positive over this period.
(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).