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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 up 0.5% over the past week, with outsized positive equity returns leading the way. Equities were up 2.1% WoW, with FX returns up 0.4%, while bonds were the laggards, -0.2% WoW.
- Equity momentum models remain the best-performing model over a three-month timeframe (+8.3%).
Market Implications
- Momentum models are more bullish USD/JPY, while we have gone short the pair
- Momentum models are bullish EUR/CHF – we have taken profit on our recent long position and think a corrective reversal is due.
Latest Signals
Equity momentum models remained bearish on the FTSE-100, while they remain heavily bullish on the S&P 500, Nikkei, and DAX (Chart 1). John is constructive equities, although he wants to be patient, as his view is that stocks stay in a narrow range until either inflation cools or the economy/employment slows, giving the Fed cover to cut rates.
Rates momentum models are broadly unchanged. They remain bearish JGBs following the end of the BoJ’s NIRP policy, and are as bearish US 5s and the long bond as last week, and less bearish 10s post-Fed. Our rates PCA model is flagging 13 trades.
Turning to FX, momentum models are more bullish USD/JPY, less bullish GBP/USD, and more bearish NZD/USD. They also flipped bearish to bullish on EUR/SEK. They remain as bullish EUR/CHF this week as last – we have taken profit on our long position this week, and think we are due a reversal of the recent CHF sell-off.
Model Performance
Momentum models rose 0.5% over the past week as stellar gains for equities (+2.1% WoW), together with a +0.4% showing from FX WoW, outweighed a -0.2% WoW performance from bonds. Equities momentum models remain the only positive-performing model over the past three months (+8.3%), with rates down 0.8% and FX down 1.1% over this period.
(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).
Richard Jones writes about FX and rates markets for Macro Hive. He has traded and invested in interest rate and FX market portfolios spanning three decades, both on the buy-side and sell-side.