Momentum Models Increase Bearish UST Exposures and Flip Long USD/JPY

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 equity models up +1.2% WoW, FX models up +0.1% WoW, and rates models up +0.3% WoW.
• Momentum models are up +0.8% in aggregate over a three-month time frame, with equity models the best performing (+2.1%).

Market Implications

• Momentum models slipped to long USD/JPY from short USD/JPY. We think reciprocal US tariffs will hit EM harder than G10 FX. Meanwhile, we do not think Japan will be singled out but may face reciprocal tariffs equivalent to those on US food exports.

Latest Signals

Equity momentum model signals were unchanged. The S&P 500, DAX and FTSE signals remain very bullish, and the Nikkei signal remains modestly bullish (Chart 1).

Rates momentum model signals are more bearish. Signals in the US 5Y and 10Y shifted to very bearish from modestly bearish, with the long bond signal unchanged at modestly bearish. All other signals are also unchanged – JGBs very bearish, bunds very bullish, and gilts modestly bearish (Chart 1).

FX momentum models saw small shifts. USD/JPY notably flipped to modestly bullish from modestly bearish. Other USD pairs are all unchanged – EUR/USD, GBP/USD, AUD/USD and NZD/USD remain modestly bearish, with USD/CAD also unchanged (modestly bullish). In the EUR crosses, EUR/CHF turned very bullish from modestly bullish, EUR/SEK is unchanged (modestly bearish), and EUR/NOK flipped to modestly bearish from modestly bullish (Chart 2).

Model Performance

• Momentum models were up +0.4% over the past week, with equity models up +1.2% WoW, FX models up +0.1% WoW, and rates models up +0.3%.

*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).

(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.)