Set out below is the latest update from one of our research partners, Ineichen Research & Management (IR&M) as at 11 January 2019.

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.

The key take outs from this month are:

• Overall changes remain negatively biased. Over the past five updates the positive-negative change ratio was 18:59, i.e., a strong negative bias
• Economic, business and consumer sentiment remain falling
• Overall 23% of December PMI were below 50 compared to 16% in November

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 rose. Key changes include:

The Positives- across all 6 regions long term price momentum of the 10 yr yields has fallen.

The only negative was economic momentum in Japan is falling.

December 2018 bottom line tally:

What about Australia?
According to Ineichen’s data:

• Economic momentum remains worsening.
• The earnings estimates have worsened since last month moving from 9 to 10 negative signals
• Long term price momentum for our two composite indices (ASX 300 & ASX 200) remain negative.
• The latest PMI measure fell below the 50 threshold in December.

This month Ineichen re-looked at Australian GDP forecasts suggesting the 2019-2020 outlook is stable at 2.7%.

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).