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Summary
- Momentum models (+0.8% WoW) reversed last week’s losses, with rates models (+2.1% WoW) leading the effort. FX and equity momentum model performance was far smaller (+0.2% WoW).
- Rates momentum models are the best-performing models over a three-month timeframe (+5.5%). FX (+0.2%) followed, while equity (-3.3%) struggled.
Market Implications
- Momentum models remain bearish on UK rates. However, Henry sees value in being long the front end of the UK curve.
- They remain bullish on USD, with the strongest signals against the $-bloc. We see best value trading it against European currencies (long USD vs GBP, CHF and EUR).
Latest Signals
Equity momentum models returned to bearish on the FTSE-100 (Chart 1). This makes them bearish across all four major indices we track. However, hedge funds are positioned for Nikkei outperformance.
Meanwhile, rates momentum models remain heavily bearish. However, on a strategic front, Henry and Richard see value in owning the front end of the curve, receiving February 2024 MPC-Dated SONIA (target: 0bp) and being long the March 2024 SONIA future (target: 94.80).
Turning to FX, momentum models have flipped heavily bearish on EUR/CHF – Ben and Richard’s tightened EUR/CHF stoploss got hit yesterday. Meanwhile, they moved heavily bearish on AUD and CAD – NZD has the least bearish signals in the $-bloc. Elsewhere, signals remain bearish EUR/USD and GBP/USD; Ben and Richard have turned short GBP/USD and GBP/CAD, adding to the position yesterday. Lastly, they remain heavily bullish USD/JPY – Bilal sees five reasons USD/JPY trades to 155 rather than 145.
Model Performance
Momentum models (+0.8% WoW) performed well over the past week as rates models turned things around (+2.1% WoW; Charts 3 to 5). They remain the top performer over the past three months, too (+5.5%). FX momentum model performance is second best (+0.2% WoW; +0.4%), with equity model performance the worst (+0.2% WoW; -3.3%).
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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