Current financial market signals- September 2018

Set out below is the latest colourful dashboard updated on 21 September 2018 from 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 in this update remain balanced. Over the past five updates the positive-negative change ratio was 38:38. From 61 regime tests in this update, 66% were positive. The positive regime tests remain mostly related to the SU economy.
  • Economic momentum remains positive in the US and mostly negative elsewhere.
  • Earnings momentum remains mostly positive.
  • Risk: CPI and PPI remain rising.
  • Our trade neighbours- China and Japan are facing worsening economic momentum (based on their financial market indices). China’s GDP growth is projected to remain within the 6-7.5% range, with the latest estimate at 6.8%. Japanese macro surprises have been flip-floppy however earnings estimates for corporate’s still look healthy. Japanese exports experienced a positive surprise, potentially on the back of the US-China trade wars.

 

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?

Over the month the sum of ticks has fallen. Key changes over the month of September a drop in industrial year on year momentum (below 2%) for the Eurozone and Germany, in addition, the UK absorbed two hits with a fall in economic momentum and in the 3 month PMI moving average.

August 2018 bottom line tally:

 

 

What about Australia?
According to Ineichen’s data, in Australia, macro surprises were mostly negative in 2018 until June and remain positive since. Long term price momentum remains mostly positive and earnings estimates have improved.

In this month’s update Ineichen continued to assess our PMI, suggesting a bounce back in August.

 

Table 2

 

 

 

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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