Current financial market signals- February 2018

Below is the latest colourful dashboard updated from 2 February 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 positively biased.
  • From 82 regime tests this month, 89% were positive which compares to 97% in the last update.
  • Inflation is trendless.
  • Quantative easing is definitely ending
  • Economic sentiment remains falling; consumer sentiment remains rising.
  • In Australasia, the Australian remains at an inflection point. Macro surprises remain negative since October 2017. Earnings estimates have worsened since the last update.

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.

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?

Broadly there are fewer risks, the sum of positive indicators has been more or less increasing since February 2016. Key changes over the month include- PMI indicators in the US improving and falling in the UK. Long term 10yr yields falling is now negative across the globe.

 

January 2018 bottom line tally:

 

 

 

What about Australia?
According to Ineichen’s data, economic momentum continues to move sideways. The Australian financial market long term momentum remains positive with earnings estimates remaining largely unchanged.

 

Table2

 

 

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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