Current financial market signals- July 2019

Set out below is the latest update from one of our research partners, Ineichen Research & Management (IR&M) as at 4 July 2019.

 

Observations
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 57:36, i.e., positively biased. 45% of regime tests in this report are positive which compares to 49% in our last update and 35% in the April 2019 and 97% in January 2018.
  • Economic and business sentiment are falling again.
  • Earnings estimates remain stable.
  • Inflation has not been rising.
  • The global economy remains very weak, particularly in nominal terms.
  • Notable is the contraction in world trade and industrial production.

 

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 remained unchanged.

Japan continues to exhibit the least amount of ticks. China lost four and the Eurozone gained two.

The US is close to a perfect score, with a few economic momentum figures falling below average.

June 2019 bottom line tally:

 

 

What about Australia?
According to Ineichen’s data:

  • Australia remains at an inflection point.
  • Economic momentum remains worsening and there continue to be some positive cross overs.
  • Macro surprises remain positive since late February.
  • Earnings estimates have not changed materially.
  • Long term price momentum remains mostly positive.
  • GDP forecasts remain unchanged at around 2.5% for 2020 and 2021.

 

 

 

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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