Momentum Returns Consolidate With Rates Outperforming

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 flat over the past week, with equity models down -0.8% WoW, FX models down -0.1% WoW and rates models up +0.8% WoW.
• Momentum models are down in aggregate over a three-month time frame, with rates and FX models the best performing (both -1.0%).

Market Implications

• Momentum models have shifted from modestly bullish to modestly bearish JGBs – we have taken profit on our paid 1Y1Y JPY OIS position.

Latest Signals

Equity momentum model signals are mostly unchanged over the past week. The signals for the S&P 500 and DAX remain (very bullish), as is the FTSE bias (modestly bearish). The bias in the Nikkei shifted from modestly bullish to very bullish (Chart 1).

Rates momentum model signals are also mostly unchanged over the past week. Signals in the US 5Y, 10Y and long bond are all unchanged (very bearish), as are bunds (modestly bearish) and gilts (very bearish). The only shift has been in JGBs, where the bias has shifted to modestly bearish from modestly bullish (Chart 1). We have taken profit on our short 10Y and 30Y USD positions.

Turning to FX, again momentum models’ biases are also mostly unchanged over the past week. USD/JPY and USD/CAD signals remain very bullish, while EUR/USD stays very bearish. GBP/USD, AUD/USD and EUR/NOK remain modestly bullish (Chart 2). The signal shifts have occurred in EUR/CHF (flipped from very bearish to modestly bullish), EUR/SEK (flipped from modestly bearish to very bullish) and NZD/USD (flipped from modestly bullish to modestly bearish).

Model Performance

• Momentum models were flat over the past week, with equity models down -0.8% WoW, FX models down -0.1% WoW and rates models up +0.8% WoW.

*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).

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)