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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 reversed last week’s gains as they declined -0.2% over the past week. Rates fared worst (-0.4% WoW), while equities followed (-0.2% WoW).
- Equity momentum models are the only positively performing model over a three-month timeframe (+3.7%). Rates (-1.8%) and FX models (-1.6%) have struggled.
Market Implications
- Momentum models are heavily bullish GBP/USD – we are short.
Latest Signals
Equity momentum models remain heavily bullish on the S&P 500, Nikkei, and DAX, while they are bearish on the FTSE-100 (Chart 1). John Tierney believes that any stumble in earnings from the Magnificent seven – Apple, Amazon, and Meta report after today’s NY close – will be an opportunity to add to bullish positions.
Rates momentum models flipped bullish on Bunds but remain bearish elsewhere. In rates, we have recently turned short on the US 10Y and 30Y, with strong growth and term premium expansion likely to push US long-end yields higher, while we are paying 2Y EUR swaps vs receiving 2Y GBP swaps. Meanwhile, our rates PCA model is flagging 19 trades.
Turning to FX, momentum models have turned heavily bullish GBP/USD – we are short GBP/USD (target: 1.2350; stop loss: 1.2900) – and have flipped bullish EUR/SEK. Signals were unchanged otherwise.
Model Performance
Momentum models reversed last week’s gains, slipping -0.2% WoW as rates (-0.4% WoW) and equities (-0.2% WoW) momentum models underperformed. However, the latter remains the only positive performer over the past three months (+3.7%).
(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 3 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 3 months, you buy, otherwise, you sell (note I use excess returns).
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.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.