Current Financial Market Signals - September 2017


Below is the latest colourful dashboard updated from 08 September 2017 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, so the dashboard in isolation means little as it needs to be compared to a previous dashboard (top right hand corner). Changes vs last update are circled.

The key take outs from Table 1 are:

  • Globally, the pick-up in economic growth looks intact albeit losing speed.

  • In the US, equities long term price momentum remains positive and fundamentals are improving.

  • Economic momentum in the Eurozone remains positive. Macro surprises have, in the main, also remained positive. The picture is not so rosy for the UK.

  • Australasia, China’s economic trend continues its upwards trajectory. Australian economic momentum also remains positive, however, price earnings estimates have waned a bit.

Important: Ineichen does warn about complacency in financial markets and the very low level of volatility across markets does seem at odds with the volatile political climate. Historically September and October have been weak months on global exchanges so we are somewhat cautious as to how ‘green’ things really are.

When compared to the dashboard in June 2017 (Table 2), there have been some noticeable positive changes to fundamentals and economic trends, supportive of the improving global state.

Table 1

Table 2

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?

Broadly there are fewer risks, green ticks are a pleasing sight compared to early 2016, illustrated in the top right hand corner of Table 3 which as you can see was lit up with ‘time bombs’. The sum of positive indicators has further increased over the last month to a new all-time high. Key changes over the month include- economic momentum indicators in the UK and Eurozone have improved; long term earnings momentum in Japan have turned negative.

Table 3

What about Australia?

It may not feel like it, but according to Ineichen’s data, economic momentum is positive and long term momentum in the equity market has turned slightly negative. Earnings estimates are relatively steady, the outlook for Australian financials has worsened. The equity market seems caught in limbo, tracking sideways throughout 2017.

Table 4

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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