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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 added to last week’s gains, up +0.4% WoW. Equities fared best (+1.2% WoW), then rates (+0.3% WoW) and FX (+0.1% WoW).
- Equity momentum models are the only positively performing model over a three-month timeframe (+5.8%). Rates (-0.1%) and FX models (-0.6%) have struggled.
Market Implications
- Momentum models are heavily bearish EUR/USD – we are short.
Latest Signals
Equity momentum models remain heavily bullish on the S&P 500, Nikkei, and DAX, while they are bearish on the FTSE-100 (Chart 1). John remains marketweight in equities, favouring companies that provide AI infrastructure.
Rates momentum models have turned heavily bearish on the US 5Y and 10Y and JGBs. We remain short on the US 10Y (target: 4.40%) and 30Y (target: 4.65%) and are paying 2Y EUR IRS vs 2Y GBP IRS (target: 90bps). Meanwhile, our rates PCA model is flagging 16 trades, with a hit rate above 70%.
Turning to FX, momentum models have turned heavily bullish USD/JPY – the MoF have started talking, and we note they tend to get their way. They have also turned bearish EUR/NOK and EUR/SEK. We remain short GBP/USD (target: 1.2350; stop loss: 1.2900), short EUR/USD (target: 1.055; stop loss: 1.095), long EUR/CHF (target: 0.9700; stop loss: 0.9245), and long EUR/GBP (target: 0.8765; stop loss: 0.8455).
Model Performance
Momentum models returned +0.4% over the past week, extending last week’s gain. Equities (+1.2% WoW) outperformed, with rates (+0.3% WoW) and FX (+0.1% WoW) returns proving comparatively modest. Equity momentum models remain the only positive performer over the past three months (+5.8%).
(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.