Set out below is the latest update from one of our research partners, Ineichen Research & Management (IR&M) as at 14 June 2019.

 

Observations
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 60:28, i.e., positively biased. 49% 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 momentum is not falling synchronically anymore; improving in some cases.
• Business and consumer sentiment are rising, generally.
• Earnings estimates are abnormally stable.
• Inflation fell quite sharply in May.
• OECD leading indicators remain falling but the percentage of risers remains rising too.

 

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.

Japan continues to exhibit the least amount of ticks, with a new negative addition as economic momentum begins to fall away. The UK experienced the largest negative tilt since the last report, with FX momentum, economic momentum and PMI all falling away.

China maintains its 100% score card holding.

 

May 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 for the two composite indices (ASX200 and ASX300) remains mostly positive.
• Long-term price momentum in mining remains positive.
• Business conditions appear at their lowest since September 2014.

 

 

Point of Interest–

 

 

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).