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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 equity models down -0.3% WoW, FX models down -0.6% WoW and rates models down -0.1% WoW.
- Momentum models are down over a three-month time frame, with rates models the best performing (-0.4%).
Market Implications
- Momentum models are modestly bullish USD/JPY – we remain short the pair despite the recent rally.
Latest Signals
Equity momentum model signals have had small bias shifts. The signals for the S&P 500 and DAX remain unchanged (very bullish), while the bias in the Nikkei flipped modestly bullish from modestly bearish. The FTSE signal shifted to very bullish from modestly bullish (Chart 1).
Rates momentum model signals are bullish except for Gilts – signals in the US 5Y and long bond are unchanged (modestly bullish), and US 10Y shifted to modestly bullish from very bullish. Signals in the JGB and Bund are also unchanged (very bullish), while the bias in Gilts flipped modestly bearish from modestly bullish (Chart 1). We are less optimistic than the BoE’s more hawkish members on the UK’s consumer outlook based on the speed and manner of policy transmission and the recent trend in household wealth and savings data. We remain long 10Y Gilts and still expect two BoE cuts by year-end.
Turning to FX, momentum models’ biases shifted slightly – EUR/USD, USD/JPY, EUR/CHF and USD/CAD signals remain unchanged (modestly bullish), as do GBP/USD, AUD/USD, and NZD/USD (all very bullish). Shifts occurred in EUR/SEK (flipping very bearish from modestly bullish) and in EUR/NOK, shifting to modestly bullish from very bullish (Chart 2).
Model Performance
- Momentum models were down -0.4% over the past week, with equity models down -0.3% WoW, FX models down -0.6% WoW and rates models down -0.1% WoW.
(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).