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Momentum Models Move Max Long S&P While Being Max Short 10Y Treasuries
- By Bilal Hafeez and Ben Ford
- 2 min read
When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.
Market Implications
- Momentum models are moving towards our view that GBP/CAD will trade lower over the next six months. They also back our bias to expect European equities to underperform US equities.
- They also agree with Mustafa’s view that US 10Y treasury yields will continue to rise to around 4.5%.
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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.
Market Implications
- Momentum models are moving towards our view that GBP/CAD will trade lower over the next six months. They also back our bias to expect European equities to underperform US equities.
- They also agree with Mustafa’s view that US 10Y treasury yields will continue to rise to around 4.5%.
Summary
- All three momentum models underperformed this week with equities losing 0.5% WoW.
- Our Rates momentum model is the best-performing over a three-month time frame (+2.1%). Meanwhile, FX momentum models (-0.1%) and equity models (-2.2%) have struggled.
- Momentum models have now turned bullish on the FTSE-100 while turning max-long on the S&P 500. On the FX side, our models are now bullish EUR/CHF, in line with Ben’s view while being bearish on EUR/NOK. Our models are max bearish on rates with the exception of gilts where the model is no longer max short.
Latest Signals
Equity momentum models are now max long on the S&P 500, while also flipping long on the FTSE from max short. Meanwhile, our models stay unchanged on the Nikkei and Dax.
On the rates side, our models stay max short except in Gilts where the level of bearishness is falling on the back of the weaker labour market data.
Turning to FX, momentum models are heavily bullish on USD/JPY and EUR/SEK. They are also heavily bearish AUD/USD. However, where we have seen a change is that our models are now bullish on EUR/CHF, while turning bearish on EUR/NOK.
Model Performance
All three momentum models underperformed this week with equities losing 0.5% WoW. Over the long horizon, rates momentum models performed best (+2.1%) followed by FX momentum models (-0.1%).
*The basic strategy is to use returns (lookback windows) to give buy/sell signals. So, if the US stocks are up over the past 3 months, you buy, otherwise, you sell (note I use excess returns).