Set out below is the latest update from one of our research partners, Ineichen Research & Management (IR&M) as at 15 November 2019.
The key take outs from this month are:
- Overall changes in this update were positively biased. In this update, 53% of the regime tests were positive. This compares to 44% in October and 38% in September.
- Nearly everything economic remains “worsening”. However, economic sentiment has flipped to positive in November.
- Hard economic data is “less bad” than sentiment gauges had implied.
- Earnings estimates remain falling mildly. Healthcare is the strongest, Energy the weaker sector, based on recent earnings revisions.
- CPI and PPI remain falling. Financial risk has been easing. Risk remains “on” when judged by US High Yield.
- Notable- US recession probability is falling. Japan is no longer the worst economy, the UK has.
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.
Over the month the sum of ticks rose by one.
For a long time, Germany and Japan were the worst in this exhibit. Now it’s the UK.
US and China remain the best performers, which is a bit odd. The US experienced a drop in year on year GDP growth expectations falling below 2%.
What about Australia?
According to Ineichen’s data:
- Australia remains improving.
- Economic momentum remains in positive territory.
- Macro surprises remain positive since late February, only intermittently negative during a couple of days in July.
- Earnings estimates continue to worsen.
- Long term price momentum remains mostly positive.
- Australian GDP forecasts for 2019 have fallen by 1% (to 1.8%) this year. Forecasts for 2020 and 2021 are both reasonably stable around 2.5%
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).