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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 FX and rates underperforming equities. Stocks were +0.9% WoW, FX was -0.2% WoW and fixed income was -1.5% WoW.
- FX momentum models are the best-performing over a three-month timeframe (+1.1%).
Market Implications
- Momentum models have flipped from bullish to bearish GBP/USD – we see value in fading GBP strength, as the currency approaches the top of its range on a trade-weighted basis.
Latest Signals
Equity momentum model signals have shifted slightly over the past week. The S&P 500 signal is unchanged at very bullish, with the Nikkei signal becoming more bullish, and the DAX and FTSE biases becoming less bullish (Chart 1).
Rates momentum models tacked less bearishly across US instruments and UK gilts but remain very bearish JGBs and German bunds. Dominique expects the Fed to keep its easing bias next week, but convey a shallower easing cycle, with the 2024 median dot to show only one cut and the long-term dot to increase.
Turning to FX, momentum models’ views have also shifted slightly – flipping bullish to bearish GBP/USD, bearish to bullish NZD/USD, and less bullish EUR/CHF. The remaining signals are unchanged: EUR/USD (bearish), USD/JPY (bullish), AUD/USD (bullish) and USD/CAD (bullish). Ben still favours downside in AUD/NZD.
Model Performance
Momentum models were down 0.4% over the past week as bonds (-1.5% WoW) and FX (-0.2% WoW) underperformed equities (+0.9% WoW). FX momentum models are the best-performing over the past three months (+1.1%), followed by rates (flat) and equities (-0.3%).
(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).