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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 inched +0.2% higher over the past week as equities outshone mixed outings in rates and FX.
- Equity momentum models are the only positively performing model over a three-month timeframe (+4.0%). Rates (-2.2%) and FX models (-1.7%) have struggled.
Market Implications
- Momentum models have pared USD/JPY bullishness – we think it will reach 150.
- They have also pared GBP/USD bullishness – we have turned short.
Latest Signals
Equity momentum models have turned heavily bullish on the DAX while paring heavy FTSE-100 bearishness (Chart 1). Bilal found, when talking to a group of around 40 investors, that most expect the AI hype cycle/theme to run throughout 2024.
Rates momentum models turned bearish on JGBs, having previously been heavily bullish. The change comes as the BoJ continued to lay the groundwork for a hike. They remained bearish elsewhere, while our rates PCA model is flagging 19 trades. On a discretionary basis, we recently added to our long Sep24 SONIA position – we remain dovish on the BoE vs market pricing.
Turning to FX, momentum models have pared bullish conviction on USD/JPY and GBP/USD – we think USD/JPY will reach 150 and are short GBP/USD (target: 1.2350; stop loss: 1.2900). Elsewhere, they pared EUR/CHF bearishness – we are long EUR/CHF (target: 0.9700; stop loss: 0.9245) – and flipped short on EUR/SEK.
Model Performance
Momentum models edged +0.2% higher on the week as a stellar week in equities (+1.1% WoW) outshone the mixed with in rates and FX (+0.0% WoW). Equity momentum models remain the only positive performer over the past three months (+4.0%).
(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 3 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 3 months, you buy, otherwise, you sell (note I use excess returns).
Ben Ford is a Researcher at Macro Hive. Benjamin studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.