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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 0.1% over the past week, with negative equity returns weighing on aggregate performance. Equities were down 0.9% WoW, while bonds were up 0.3% WoW, and FX returns flat.
- Equity momentum models remain the best-performing model over a three-month timeframe (+8.3%).
Market Implications
- Momentum models remain bullish USD/JPY, while we remain short the pair.
Latest Signals
Equity momentum models became less bullish on the Nikkei, while they remain heavily bullish on the S&P 500 and DAX (Chart 1). John expects equities to trade in a narrow range until the good news already priced in starts materializing.
Rates momentum models became more bearish across all the different bond contracts. They have pared back bearishness in the US 5s and German bunds. We look for an opportunity to (re)enter a short US rates position in our model portfolio.
Turning to FX, momentum models remain strongly bullish USD/JPY, EUR/SEK, EUR/CHF and EUR/NOK. They also became more bullish USD/CAD, while remaining very bearish EUR/USD and NZD/USD, and more bearish AUD/USD. We took profit on our long EUR/CHF position recently and look for a reversal lower in the pair, in addition to remaining short USD/JPY.
Model Performance
Momentum models fell 0.1% over the past week as losses for equities (-0.9% WoW), lagged behind a +0.3% showing from bonds WoW and a flat WoW performance from FX. Equities momentum models remain the only positive-performing model over the past three months (+8.1%), with rates down 0.5% and FX down 0.1% 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).