Current financial market signals- March 2019

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

 

Observations
The key take outs from this month are:

  • Overall changes in this update were positively biased again. 46% of regime tests in this report were positive which compares to around 39% in last two updates. “Only” three economies from top 25 are in recession.
  • Nearly everything macroeconomic is “worsening”. OECD leading indicators as well as economic, business, and consumer sentiment remain falling.
  • Global earnings momentum remains negative. Macro surprises have been negative since March 2018 albeit only a few interruptions.
  • Long term price momentum in equities globally remains mainly negative but has been turning positive in emerging market indices over the last 8 weeks.
  • Earnings estimates remain falling, albeit mildly.
  • GDP forecasts for 2019 are falling
  • US is in “risk limbo” with some regime tests implying risk is on, while other suggest it is off

 

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 dropped again. It would have dropped further if it was not for upticks in China.

 

February 2019 bottom line tally:

 

 

What about Australia?
According to Ineichen’s data:

  • Economic momentum remains worsening.
  • Macro surprises have been negative since early December but were positive at the time of writing.
  • Earnings estimates have not changed materially since February
  • Long term price momentum for the two composite indices remains negative, however has remained positive for metals and mining.

 

 

Points of Interest

This month Ineichen looked at two points of interest- computer productivity and the impact of the Euro on Eurozone members.

 

 

 

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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