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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 0.4% over the past week, with positive performances in fixed income and FX outweighing negative equity returns. Equities were down 0.7% WoW, while bonds were up 1%, and FX returns up 0.6%.
- Equity momentum models remain the best-performing model over a three-month timeframe (+6.2%).
Market Implications
- Momentum models are very bearish EUR/USD and bullish USD/JPY — we have entered a short EUR basket trade and have closed out our recent short USD/JPY position.
Latest Signals
Equity momentum models became less bullish on the S&P 500, more bullish the Nikkei, while they remain heavily bullish on the DAX and moderately bullish 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, adding bearishness in JGBs, taking them to the same levels of bearishness as the US bond contracts, German Bunds and UK Gilts. We look for an opportunity to (re)enter a short US rates position in our model portfolio, in addition to seeing upside risk to UST duration supply over the next year.
Turning to FX, momentum models are strongly bullish the USD across-the-board, increasing bearishness in GBP/USD. They are also bullish the EUR crosses, remaining very bullish EUR/CHF and EUR/SEK, while paring back EUR/NOK bullishness. 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.
Model Performance
Momentum models rose 0.4% over the past week as a +1% showing from bonds WoW and a +0.6% WoW gain from FX more than offset losses for equities (-0.7% WoW). Equities momentum models are still the best-performing model over the past three months (+6.2%), with rates (+1%) and FX (+0.6%) now 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).