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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 0.3% over the past week, with negative performances in fixed income and FX outweighing positive equity returns. Bonds were -0.7% WoW and FX -0.2% WoW, versus a +0.2 WoW gain in equities.
- Equity momentum models remain the best-performing model over a three-month timeframe (+3.6%).
Market Implications
- Momentum models are very bullish USD. We remain short a EUR basket, consider whether the USD has already peaked, and expect additional JPY intervention.
Latest Signals
Equity momentum models have changed slightly, with the S&P 500 bias flipping from moderately long to moderately short, and with FTSE bullishness jumping. Nikkei and Dax sentiment remain moderately bullish, unchanged from the week before (Chart 1). John has been focused on tech earnings this week and expects the sideways market action to continue ahead into the US jobs report.
Rates momentum models remained strongly bearish across all bond contracts. Bilal says Fed Chair Powell is too dovish on rates, and that the bottom line is that we could still see US yields rise.
Turning to FX, model views remain unchanged: strongly bullish USD across the board and very bullish EUR/CHF EUR/NOK and EUR/SEK. Ben considers whether the USD has already peaked, while we remain short a EUR basket.
Model Performance
Momentum models slid 0.3% over the past week as bonds (-0.7% WoW) and FX (-0.2% WoW) underperformed equities (+0.2% WoW). Equities momentum models are still the best performing over the past three months (+3.6%), with rates (+2.0%) and FX (+0.9%) also positive over this period.
(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).