Current financial market signals- April 2018

Set out below is the latest colourful dashboard updated from 8 April 2018 by one of our research partners, Ineichen Research & Management (IR&M).

 

Observations
In the IR&M dashboard, green is good, red is bad. Markets respond mostly to change. Changes vs last update are circled.

The key take outs from this month are:

  • Overall changes were again negatively biased. From 75 regime tests in this update, 54 (72%) were positive, compared to 97% in January. Many equity indices took their Death Cross recently.
  • Economic momentum: Roughly half of Ineichen’s models imply negative momentum or a negative cross-over. Overall the situation is worse in Europe, when compared to US.
  • Earnings momentum remains positive.
  • UK is almost as bad as Dec 1999 and October 2007
  • Better safe than sorry.

 

Table 1

 

A refresh on the columns
Looking at each of the factors, broadly from left to right, the first five columns set out IR&M’s interpretation of various recent economic data released in those counties and whether it is generally improving or deteriorating. The EPS change column in the middle is a very important indicator of whether profits estimates for the next year are rising or falling. The final three columns look at the momentum (or technicals) in the various global share markets.

 

Are there any Risks?

Risks are rising. The sum of ticks (below) fell by 14 to 34, off the all-time high of 57 in January and is the sharpest fall since October 2014. The sum of ticks had been gradually rising since February 2016 and has taken a turn. Globally average economic, business and consumer sentiment remain falling yet the average growth rate is reasonably stable. In the US preliminary consumer sentiment gauge fell and the small business sentiment report was horrid. Japan has seen long term price momentum turn negative.

March 2018 bottom line tally:

 

What about Australia?
According to Ineichen’s data, economic momentum in Australia seems to be worsening. Macros surprises continue to be negative otherwise, in regards to earnings estimates, these remain unchanged. Charts highlight that the AUD is very closely correlated to commodities- all composite commodity indices remain positive in terms of long term price momentum. Changes over the past four weeks were negatively biased though.

Table 2

 

 

 

 

Source: Ineichen Research & Management
IR&M is one of several research sources that guide our investment decision making. They are Swiss based and provide a detailed global view of the many drivers of investment markets. Like us, they believe that in the long run investment returns are driven by the fundamentals (the prices today will ultimately revert to what various things fundamentally ought to be worth) but in the short term may be driven more by sentiment and momentum (otherwise known as “technical” signals).

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