Momentum Models Return to Black Led by Equity and FX

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 0.8% WoW, FX models up 0.5% WoW and rates models down 0.1% WoW.
• Momentum models are all down over a three-month timeframe, with FX models the best performing (-1.2%).

Market Implications

• Momentum models are bearish USD to varying degrees across various pairs – we think USD is due a near-term bounce and express the view through a USD/CHF call spread.

Latest Signals

Equity momentum model signals have shifted minimally. The signals for the S&P 500 (very bullish), Nikkei (modestly bearish), and Dax (very bullish) are all unchanged. There has been a slight shift in the FTSE signal, which is now modestly bullish having been very bullish last week (Chart 1).

Rates momentum model signals have also shifted slightly – momentum signals in the US 5Y, 10Y and long bond futures are unchanged (all modestly bullish). Outside the US rates space, the JGB signal has shifted from modestly bullish to very bullish. The bund signal remains very bullish, unchanged from last week, while gilts have shifted from very bullish to modestly bullish. Dominique reviewed the recent benchmark NFP revisions, concluding they have limited economic importance. Dom still expects a Fed rate cut next month.

Turning to FX, momentum models’ views are broadly steady – the only signal shift is in EUR/SEK, which is now modestly bearish after being very bearish last week. All other signals are unchanged: EUR/USD, GBP/USD, AUD/USD and NZD/USD (all very bullish); USD/JPY, EUR/CHF and USD/CAD (all modestly bearish); and EUR/NOK (modestly bullish).

Model Performance

• Momentum models were up 0.4% over the past week, with equity models up 0.8% WoW, FX models up 0.5% WoW and rates models down 0.1% WoW.

(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 three 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 three months, you buy, otherwise, you sell (note I use excess returns).

Richard Jones writes about FX and rates markets for Macro Hive. He has traded and invested in interest rate and FX market portfolios spanning three decades, both on the buy-side and sell-side.

(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.)