Current financial market signals- March 2018

Below is the latest colourful dashboard updated from 16 March 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 negatively biased. 92% of regime tests in this update were positive, compared to 97% in the January update.
  • Economic momentum remains mostly positive. OECD’s leading indicators are still rising, but only mildly, for the first time in a while, risers and fallers were balanced. Business and consumer sentiment are high but falling, generally.
  • Earnings momentum remains positive.
  • Notably, the US is improving structurally, with a US recession probability rising.
  • Australia remains at an inflection point. Although macro surprises turned positive in January, there were back to negative in March.

 

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?

Risk is generally rising- although liquidity is still ample, funding costs and funding risks are gradually rising. Clearly volatility is returning to the markets, although notably inflation through CPI and PPI are still largely absent and in fact inflation expectations for the global economy fell sharply.

Long term price momentum of UK and Eurozone equity indexes turned negative, whereas economic momentum for China is rising.

 

February 2018 bottom line tally:

 

 

What about Australia?
According to Ineichen’s data, the earnings estimates have not changed since February. Long term price momentum remains mostly positive, except for the Financials sector (being our largest sector!).

Table4

 

 

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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