This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
Summary
- Momentum models gained +0.3% over the past week. Equities fared best (+1.6% WoW), while rates (+0.0%) and FX (-0.1% WoW) underperformed.
- Equity momentum models remain the best-performing model over a three-month timeframe (+7.0%).
Market Implications
- Momentum models are bullish EUR/USD – we are short – and bullish EUR/CHF – we are long.
- They are also heavily bearish USTs – we are short the US 10Y and 30Y.
Latest Signals
Equity momentum models flipped heavily bearish on the FTSE-100 but remained heavily bullish on the S&P 500, Nikkei and DAX (Chart 1). John remains marketweight in equities, favouring companies that provide AI infrastructure with any selloffs in NVDA representing attractive buy opportunities.
Rates momentum models have added to bunds bearishness, in line with signals for US rates and Gilts. We remain short on the US 10Y (target: 4.40%) and 30Y (target: 4.65%) but tighten our stop losses. In Europe, we are paying 2Y EUR IRS vs 2Y GBP IRS (target: 90bps). Our rates PCA model is flagging 12 trades, with a hit rate above 70%.
Turning to FX, momentum models have flipped bullish on EUR/USD and GBP/USD – we remain short both – and bullish EUR/CHF – we remain long EUR/CHF. Elsewhere, they turned heavily bearish EUR/SEK and bullish EUR/NOK – we are looking to fade EUR/NOK upside. Lastly, they are heavily bearish NZD/USD and bullish USD/CAD.
Model Performance
Momentum models pushed +0.3% higher over the past week as a strong outing for equities (+1.6% WoW) outshone the mediocre performance in rates (0.0% WoW) and FX (-0.1% WoW). Likewise, equity momentum models are the best-performing model over the past three months (+7.0%), with rates (+0.4%) marginally positive. Overall, our range of models are performing well this year.
Ben Ford is a Researcher at Macro Hive. Benjamin studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.