Momentum Models Post Solid Gain as FX Leads, Equities Lag

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 +0.7% over the past week, with FX models gaining +1.4% WoW, rates models up 0.3% and equity models down -0.5% WoW.
• Momentum models are up in aggregate over a three-month time frame, with FX and equity models the best performing (+0.3%).

Market Implications

• Momentum models are bullish USD across the FX majors – we expect slightly more USD upside this month but think it may be time to temper USD bullishness.

Latest Signals

Equity momentum model signals are mostly unchanged over the past week. S&P 500 signals remain very bullish, with the DAX and FTSE biases also unchanged (modestly bullish and modestly bearish, respectively). The Nikkei bias shifted from very bullish to modestly bullish (Chart 1).

Rates momentum model signals are unchanged over the past week. Signals in the US 5Y, 10Y, long bond, JGB and gilts all remain very bearish, while bunds remain modestly bearish (Chart 1).

FX momentum model biases have shifted modestly over the past week. USD/JPY, USD/CAD and EUR/SEK signals remain very bullish, while EUR/USD, AUD/USD and NZD/USD stay very bearish. GBP/USD flipped from modestly bullish to modestly bearish, as EUR/CHF shifted from modestly bearish to very bearish and the EUR/NOK bias became modestly bullish after being very bullish last week (Chart 2).

Model Performance

• Momentum models were up +0.7% over the past week, with FX models gaining +1.4% WoW, rates models up 0.3% and equity models down -0.5% WoW.

*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.)