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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 inched -0.1% lower over the past week, with a poor outing for FX outweighing positive performances for equities and rates.
- Equity momentum models are the only positively performing model over a three-month timeframe (+3.7%). Rates (-2.1%) and FX models (-1.9%) have struggled.
Market Implications
- Momentum models are bearish on US rates. We, however, see value in positioning for US curve steepeners.
Latest Signals
Equity momentum models have turned heavily bearish on the FTSE-100, from bearish previously, as the one-month signal flipped to signal sell (Chart 1). The index has declined 3.8% YTD. The models remain heavily bullish on the Nikkei and S&P 500, too. However, John thinks the latter is due to trade in a tight range in coming weeks.
Rates momentum models are bearish on US rates and have turned heavily bullish on JGBs. Meanwhile, our rates PCA model is flagging 21 trades. On a discretionary basis, we continue to see best value in US 2s5s and 5s10s steepeners, while our most recent trades have seen us looking to fade BoE hawkishness post CPI, pay April ECB-dated ESTR, and be long 10Y SPGB vs Italy and Germany.
Turning to FX, momentum models are heavily bullish USD/JPY – we think USD/JPY will reach 150 in coming weeks. They are bearish EUR/USD – we think EUR/USD will retreat to 1.07. And they flipped bullish EUR/SEK, EUR/NOK, USD/CAD, and bearish AUD/USD and NZD/USD.
Model Performance
Momentum models edged -0.1% lower on the week as a poor outing in FX (-0.4% WoW) offset gains in equities (+0.3% WoW) and rates (+0.1% WoW). Equity momentum models are the only positive performer over the past three months (+3.7% WoW).
(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).
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.