Momentum Models Reverse Last Week’s Gains

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 (-0.4% WoW) reversed last week’s gains, with rates (-0.8% WoW) FX momentum models (-0.2% WoW) registered smaller losses.
• Rates momentum models are the best-performing models over a three-month timeframe (+3.0%). FX (+0.7%) followed, while equity (-1.7%) struggled.

Market Implications

• Momentum models pared bund bearishness. Henry has recently concentrated his focus on the EUR front-end, seeing value paying April 2024-dated EUR OIS.

Latest Signals

Equity momentum models have turned bullish on the Nikkei, while they remain bearish elsewhere (Chart 1). In the US, John still believes a major selloff is unlikely and sees value being long regional banks and homebuilders.

Meanwhile, bearish rates momentum has pared for bunds and gilts. As it stands, Henry sees value paying April 2024-dated EUR OIS, while he is in numerous trades across the UK curve.

Turning to FX, momentum models have flipped bullish on GBP/USD and EUR/CHF ­– we closed our short GBP/USD position after the Bank of England meeting. Elsewhere, they turned less bearish on AUD/USD – Ben found reason to be long Antipodean currencies versus the European majors.

Model Performance

Momentum models (-0.4% WoW) reversed last week’s gains over the past week as rates (-0.8% WoW) and FX momentum models (-0.2% WoW) offset a positive equity contribution (+0.1% WoW). However, rates momentum models (+3.0%) remain the best performer over the past three months.

*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 Researcher at Macro Hive. Ben 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.

(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.)