Current financial market signals- December 2017

Below is the latest colourful dashboard updated from 1 December 2017 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, so the dashboard in isolation means little as it needs to be compared to a previous dashboard (top right hand corner). Changes vs last update are circled.

The key take outs from Table 1 are:

  • Overall changes were positively biased. From 58 regime tests in this update, 49 (85%) were positive. This compares to 97% in our last update.
  • Globally, the pick-up in economic growth continues.
  • Economic momentum in the Eurozone remains positive. Macro surprises have, in the main, also remained positive. UK perceived economic trends have flipped into improving territory.
  • In Australasia, the Australian economic trend appears to have turned negative, having sat at an inflection point last month. Fundamentals and surprises have also been negative.

Important: Ineichen does warn about complacency in financial markets and the very low level of volatility across markets does seem at odds with the volatile political climate.  Historically September and October have been weak months on global exchanges so we are somewhat cautious as to how ‘green’ things really are.

 

When compared to the dashboard in June 2017 (Table 2), there have been some noticeable positive changes to fundamentals and economic trends, supportive of the improving global state.

 

Table 1

 

Table2

 

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?

Broadly there are fewer risks, green ticks are a pleasing sight compared to early 2016, illustrated in the top right hand corner of Table 3 which as you can see was lit up with ‘time bombs’.

The sum of positive indicators has stabilised. Key changes over the month include- economic momentum indicators in the UK which have improved.

 

Table3

 

November 2017 bottom line tally:

What about Australia?
According to Ineichen’s data, economic momentum is now falling with macro surprises also having turned negative. The Australian financial market has finally followed suit of global markets and long term momentum remains positive with earnings estimates remaining unchanged.

Table4

 

 

 

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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