Current financial market signals- August 2018

Set out below is the latest colourful dashboard updated on  10 August 2018 from 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 in this update were balanced. Over the past five updates the positive-negative change ratio was 32:37, i.e., a small negative bias. From 61 regime tests in this update, 66% were positive. All but one US-related regime test are positive. The negative regime tests relate to the rest of the world.
  • Economic momentum remains mostly negative.
  • Earnings momentum remains mostly positive.
  • Risk: CPI and PPI remain rising.
  • The world economic climate is deteriorating- economic gap between the US and the rest of the world remains.

 

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?

The sum of ticks has now been slowly falling. Key changes over the month of August were negative turns for economic momentum for both Japan and China and an Industrial year on year production drop below 2% for Japan.

July 2018 bottom line tally:

 

 

What about Australia?
According to Ineichen’s data, in Australia, macro surprises were mostly negative in 2018 until June and have been positive since. Long term price momentum remains mostly positive and earnings estimates have not changed.

In this month’s update Ineichen looks at PMI, suggesting there was a fall in PMI however not one substantial enough to change the forecasted positive trajectory.

 

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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