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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 0.1% over the past week, with positive performances in fixed income and FX countering negative equity returns. Equities were down 1.9% WoW, while bonds were up 0.6%, and FX returns were +0.7%.
- Equity momentum models remain the best-performing model over a three-month timeframe (+4.0%).
Market Implications
- Momentum models are very bearish EUR/USD and bullish USD/JPY – we remain short a EUR basket, have closed out our recent short USD/JPY position, and are on the lookout for official JPY intervention.
Latest Signals
Equity momentum models became less bullish the Nikkei and the DAX, with unchanged exposures for the S&P 500 and the FTSE (Chart 1). John sees a soft Q1 earnings season ahead, with equities trading in a range until the rate cut path becomes clearer.
Rates momentum models remained strongly bearish across all the different bond contracts. We have entered a short-end cross-market spread trade, going long Z4 Sonia futures vs being short Z4 SOFR futures.
Turning to FX, momentum models remain unchanged, strongly bullish the USD across-the-board, bullish the EUR crosses, remaining very bullish EUR/CHF and EUR/SEK. We took profit on our long EUR/CHF position recently and look for a reversal lower in the pair, entered a short EUR basket trade, and have closed out our recent short USD/JPY position, watching for official JPY intervention.
Model Performance
Momentum models rose 0.1% over the past week as a +0.6% showing from bonds WoW and a +0.7% WoW gain from FX countered losses for equities (-1.9% WoW). Equities momentum models are still the best-performing model over the past three months (+4.0%), with rates (+1.3%) and FX (+1.5%) 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).