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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 up 0.4% over the past week, with positive equity returns leading the way. Equities were up 1.0% WoW, with FX returns up 0.5%, while bonds were the laggards, -0.3% WoW.
- Equity momentum models remain the best-performing model over a three-month timeframe (+8.0%).
Market Implications
- Momentum models remain bullish USD/JPY, while we remain short the pair.
- Momentum models flipped bearish GBP/USD – we outline the case for GBP strength, while looking to be patient and buy-on-dips.
Latest Signals
Equity momentum models flipped bullish on the FTSE-100, while they remain heavily bullish on the S&P 500, Nikkei, and DAX (Chart 1). John expects equities to grind higher, albeit without a strong upside breakout from recent ranges.
Rates momentum models remain bearish across all the different bond contracts, mostly unchanged from the previous week. They have pared bearishness in the US 5s and German bunds. Our rates PCA model is flagging 13 trades.
Turning to FX, momentum models remain strongly bullish USD/JPY, EUR/SEK, EURNOK and have become much more bullish EUR/CHF.
They also flipped from bearish to bullish on GBP/USD. They remain as bearish NZD/USD this week as last – we took profit on our long EUR/CHF position last week, remain short USD/JPY, and think there is a case for GBP strength in the medium term.
Model Performance
Momentum models rose 0.4% over the past week as gains for equities (+1.0% WoW), together with a +0.5% showing from FX WoW, outweighed a -0.3% WoW performance from bonds. Equities momentum models remain the only positive-performing model over the past three months (+8.0%), with rates down 1.3% and FX down 0.2% 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).