Current financial market signals- May 2019

Set out below is the latest update from one of our research partners, Ineichen Research & Management (IR&M) as at 24 May 2019.


The key take outs from this month are:

  • Overall changes in this update were balanced.
  • Over the past five updates the positive-negative change ratio was 60:21, i.e., positively biased. 49% of regime tests in this report are positive which compares to 45% in our last update and 35% in the one beforeUK, apart from outperforming the EU economically, surprises positively.
  • World economy rebounds.
  • Economic momentum is improving, generally, or, becoming “less bad”.
  • The earnings recession has ended in March with earnings rising “mildly” in April and May.
  • PPI is stable. CPI is stable or rising moderately.


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.

The Eurozone and Japan exhibit the least amount of ticks, although Japan did have 2 improvements across economic momentum signals. China received a 100% score card holding all available 11 ticks.


April 2019 bottom line tally:


What about Australia?
According to Ineichen’s data:

  • Australia appears at an inflection point.
  • Economic momentum remains worsening when judged by the moving average, and not the strength of the stock market, with 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) reversed to positive 10 weeks ago.
  • Long-term price momentum in mining remains positive.
  • GDP forecasts for 2019 have fallen from 2.8% to 2.2%, forecasts for 2020 and 2021 are both at 2.6%


Points 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).


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