Current financial market signals- August 2019

Set out below is the latest update from one of our research partners, Ineichen Research & Management (IR&M) as at 22 August 2019.

 

Observations
The key take outs from this month are:

 

  • Overall changes in this update were negatively biased.
  • Only 42% of data points in our summary table are positive. This compares to 52% in our last update, 8% in January 2019, and 92% in January 2018.
  • Nearly everything economic is “worsening”. Economic momentum remains negative when judged by the falling moving averages of the Ineichen global model. The negative cross-over observed two updates ago has held. Macro surprises have been negative since late March 2018 with only a few interruptions.
  • Strongest earnings downward revisions are in Germany and emerging markets.
  • Long term price momentum in equities outside of Japan remains mostly positive.
  • CPI and PPI are falling. European preliminary PMI for August surprised positively so far.
  • Macro and emerging market risks are rising.

 

The table below summarises the IR&M economic models, macro surprises, earnings and IR&M’s perceived economic trend and some technical stock market trend indicators. Changes vs last month are circled.

 

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.

 

The Risks?

Over the month the sum of ticks has fallen.

Japan continues to exhibit the least amount of ticks, dropping further.

The US remains the strongest among the economies, faltering only on economic momentum figures- primarily a drop in industrial production below 2% y/y and flatlining 3-month PMI moving average.

July 2019 bottom line tally:

 

 

What about Australia?
According to Ineichen’s data:

  • Australia appears to be improving.
  • Economic momentum has moved into positive territory.
  • Macro surprises remain positive since late February, only intermittently negative during a couple of days in July.
  • Earnings estimates have worsened immaterially since the July update.
  • Long term price momentum remains mostly positive.
  • The gauge for Australian consumer sentiment breached Ineichen’s multi-year superimposed trajectory in July and hard a strong recovery in August back into positive trajectory. The falls have been stronger then the ensuing rebounds.

 

 

Point of Interest

 

 

 

 

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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