Momentum Models Move Max Long S&P While Being Max Short 10Y Treasuries

When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.

Market Implications

• Momentum models are moving towards our view that GBP/CAD will trade lower over the next six months. They also back our bias to expect European equities to underperform US equities. 

• They also agree with Mustafa’s view that US 10Y treasury yields will continue to rise to around 4.5%.  

Summary 

• All three momentum models underperformed this week with equities losing 0.5% WoW. 
• Our Rates momentum model is the best-performing over a three-month time frame (+2.1%). Meanwhile, FX momentum models (-0.1%) and equity models (-2.2%) have struggled. 
• Momentum models have now turned bullish on the FTSE-100 while turning max-long on the S&P 500. On the FX side, our models are now bullish EUR/CHF, in line with Ben’s view while being bearish on EUR/NOK. Our models are max bearish on rates with the exception of gilts where the model is no longer max short.  

Latest Signals 

Equity momentum models are now max long on the S&P 500, while also flipping long on the FTSE from max short. Meanwhile, our models stay unchanged on the Nikkei and Dax. 

On the rates side, our models stay max short except in Gilts where the level of bearishness is falling on the back of the weaker labour market data.  

Turning to FX, momentum models are heavily bullish on USD/JPY and EUR/SEK. They are also heavily bearish AUD/USD. However, where we have seen a change is that our models are now bullish on EUR/CHF, while turning bearish on EUR/NOK. 

Model Performance 

All three momentum models underperformed this week with equities losing 0.5% WoW. Over the long horizon, rates momentum models performed best (+2.1%) followed by FX momentum models (-0.1%). 

*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).  

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.

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.

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(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.)