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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 were down 0.4% over the past week, with equity models down 0.8% WoW, FX models down 0.4% WoW, and rates models flat.
- Momentum models are down in aggregate over a three-month timeframe, with equity models the best performing (+2.4%).
Market Implications
- Momentum models have become more bullish GBP/USD, while we have the opposite view – this week our G10 FX team initiated bearish GBP/USD positioning.
Latest Signals
Equity momentum model signals are mostly unchanged from the previous week. Momentum models remain bullish across the S&P 500, Nikkei, FTSE, and Dax, with the latter’s signals going from moderately bullish to very bullish (Chart 1).
Rates momentum models have shifted a bit – momentum signals in the US 5y and 10y remain slightly bullish, while remaining slightly bearish the US long bond. The JGB signal is unchanged (very bearish), bunds have shifted from slightly bullish to very bullish, while gilts remain slightly bearish. Dominique tweaked her 2024 Fed call. She now expects one insurance cut this year, likely after the election in November or December. Additionally, we retain a tactical short position in the January 2025 Fed Funds contract.
Turning to FX, momentum models’ views have shifted slightly – EUR/USD is unchanged (slightly bullish), USD/JPY has shifted from very bullish to slightly bullish, GBP/USD has gone from slightly bullish to very bullish, and the EUR/CHF has become less bullish. EUR/NOK (slightly bullish) and EUR/SEK (slightly bearish) are unchanged, as are AUD/USD (slightly bullish) and NZD/USD (slightly bearish), while USD/CAD has flipped from slightly bearish to slightly bullish.
Model Performance
- Momentum models were down 0.4% over the past week, with equity models down 0.8% WoW, FX models down 0.4% WoW, and rates models flat.
(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.