Asia | Emerging Markets | Equities | FX | Global | UK
Momentum Models Remain Bullish USD Ahead of NFP
- By Bilal Hafeez and Ben Ford
- Sign-up to discuss on Slack
- 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.
Summary
- Momentum models add to last week’s fortunes (+0.5% WoW), performing best in FX (+0.9%) and equities (+0.7%).
- When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
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 add to last week’s fortunes (+0.5% WoW), performing best in FX (+0.9%) and equities (+0.7%).
- Overall returns were similarly positive over the past three months (+1.3%) but fall short of FX carry strategies.
- Momentum models point towards US equity underperformance and USD outperformance. Meanwhile, rates are expected to sell off.
Latest Signals
Equity momentum models expect US equities to convincingly diverge from Asian and European equivalents with signals intensifying for the Nikkei and remaining net-bullish on the DAX and FTSE -100 (Chart 1 and Table 1).
Momentum models remain bearish on US, UK, German and Japan rates without a bullish signal in sight.
FX momentum models upped their EUR/USD and AUD/USD bearishness while they increased their USD/CAD bullishness (Chart 2 and Table 2).
Model Performance
Momentum models pushed higher (+0.5% WoW), adding to the past two week’s gains. They performed best in FX (+0.9%) and equities (+0.7%), and worst in rates (-0.2%). Performance has proven positive over the past three months (rates: +1.9%; equities: +1.3%; FX: +0.8%) but has fallen short of 6.0% returns in our FX carry strategies over the same period.
Our Views
The Federal Reserve could be set to return to 50bp hikes following a hawkish Chair Powell testimony, despite having only just slowed to 25bp at the previous meeting. As it stands, Dominique believes it will take nonfarm payrolls above 250,000 with signs of labour market tightness (e.g., no increase in participation, faster wage growth) and/or core CPI above 0.4% MoM for a return to larger hikes.
In contrast, Henry continues to expect the Bank of England (BoE) to pause at their 23 March meeting, but notes the risk of another hike. Given the focus is set on whether hard data releases beat MPR expectations, Henry will focus on the labour market (14 March) and inflation (22 March) data, and the Spring Budget (15 March).
*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).