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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 moved sideways over the past week. Equities fared best (+0.3% WoW), then rates (+0.1%). FX (-0.2% WoW) underperformed.
- Equity momentum models remain the best-performing model over a three-month timeframe (+5.5%). FX models (-0.9%) have struggled.
Market Implications
- Momentum models are heavily bearish EUR/USD – we are short.
- They are also heavily bearish USTs – we are short the US 10Y and 30Y.
Latest Signals
Equity momentum models flipped bullish on the FTSE-100 and remained heavily bullish on the S&P 500, Nikkei, and DAX (Chart 1). John remains marketweight in equities, favouring companies that provide AI infrastructure.
Rates momentum models have added to US rates bearishness, now heavily bearish US long bonds; we remain short on the US 10Y (target: 4.40%) and 30Y (target: 4.65%). They also turned heavily bearish Gilts – we are paying 2Y EUR IRS vs 2Y GBP IRS (target: 90bps) – but pared JGB bearishness. Our rates PCA model is flagging 14 trades, with a hit rate above 70%.
Turning to FX, momentum models have flipped bearish on GBP/USD – we remain short GBP/USD (target: 1.2350; stop loss: 1.2900). They also flipped heavily bearish USD/CAD, needing a trip back above 1.36 to instigate a net-long position. Elsewhere, they flipped bullish NZD/USD but remained bearish on AUD/USD, with AUD/NZD down to 1.06. We have reason to remain long USD and think short EUR/NOK will make sense soon.
Model Performance
Momentum models moved sideways over the past week as positive equity (+0.3% WoW) and rates momentum model (+0.1% WoW) performance offset FX momentum models (-0.2% WoW). Equity momentum models are the best-performing model over the past three months (+5.5%), with rates (+0.2%) marginally positive over the 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 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).
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.