Set out below is the latest update from one of our research partners, Ineichen Research & Management (IR&M) as at 14 December 2018.

 

Observations
The main message from Ineichen this month continues to suggest poor news flow and things are definitely not looking rosy following the fall across markets seen over the past few months.

Whereas last month, the US economy implie all was well, tables have now turned. The key take outs from this month are:

• Overall changes in this update were negatively biased. Over the past five updates the positive-negative change ratio was 13:58, i.e., a strong negative bias
• Economic momentum: Nearly everything economic is “worsening”. OECD leading indicators remain falling. Even the US is in decline economically.
• Earnings momentum remains mostly positive. However, the changes are negatively biased, implying earnings peak has past.
• One global economy metric flashes a red alert.
• China’s falling PPI signals falling demand

 

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 continued to fall. Key changes include:

The Positives- there was only one; UK economic momentum PMI 3 month moving average continued to rise.

The Negatives-

• US long-term price momentum of the main equity index turned negative.
• Japanese long-term price momentum of the Financials sector turned negative.
• Chinese economic momentum fell; and
• Eurozone long-term earnings momentum country index turned negative.

This may be a result of the continued weaker markets globally, trade war concerns (or lack of clarity), Brexit deadline approaching, concerns surrounding the Italian bond market and not to forget- the US yield curve and rising interest rates.

November 2018

 

 

What about Australia?
According to Ineichen’s data:

• Economic momentum remains worsening.
• The earnings estimates have worsened since last month moving from 7 to 9 negative signals
• Long term price momentum for our two composite indices (ASX 300 & ASX 200) remain negative.
• At the time of writing macro surprises turned negative, which had been mostly positive since mid- July.
• The latest PMI measure curtailed the positive trajectory, changing the regime test. The services PMI, however, rose sharply.

 

This month Ineichen looked touched on house prices in Australia comparing the House price index to the ASX/S&P 200.

 

 

To wrap up the year we have a bit of trivia- putting things into perspective.

FANGMAN- Facebook, Amazon, Netflix, Google, Microsoft and Nvida.

 

 

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).