Current financial market signals- July 2018

Set out below is the latest colourful dashboard updated on  20 July 2018 from 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 in this update were positively biased. Over the past five updates the positive-negative change ratio was 34:34, i.e., balanced. 70% of regime tests in this update were positive. This compared to 67% in our last update and 97% in January.
  • Economic momentum remains mostly negative. Only 23% of OECD leading indicators are rising, down from 78% in January.
  • Risk: CPI and PPI remain rising. Financial and sovereign risk eased a bit.

 

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?

The sum of ticks has now been slowly falling. Key changes over the month of July were negative turns for FX long term momentum in both Japan and China.

June 2018 bottom line tally:

 

 

What about Australia?
According to Ineichen’s data, in Australia, not much over the past four months has changed. Economic momentum remains unchanged with macro surprises continuing to be negative and earnings estimates not changing. Long term price momentum remains mostly positive.

In this month’s update Ineichen looks at GDP, suggesting forecasts remain stable until 2020.

 

Table 2

 

 

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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