Current Financial Market Signals - November 2017
Below is the latest colourful dashboard updated from 10 November 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 continues.
In the US, equities long term price momentum remains positive and fundamentals continue to improve.
Economic momentum in the Eurozone remains positive. Macro surprises have, in the main, also remained positive with key negative surprises continuing to pop up in both Germany and France. UK remains the laggard with declining perceived economic trends.
In Australasia, China’s economic trend continues its upwards trajectory, negative top-down macro surprises remain. The Australian economic momentum also remains positive, however, economic conditions have waned a bit with economic trends at an inflection point.
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.
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 stabilised. Key changes over the month include- economic momentum indicators in the UK which have improved; long term FX momentum in Japan has turned negative as has the 3 month moving PMI indicator in China.
Table 3
October 2017 bottom line tally:
What about Australia?
According to Ineichen’s data, economic momentum may appear positive however it is falling placing Australia at an inflection point. The Australian financial market has finally followed suit of global markets and long term momentum has turned positive. Earnings estimates remain relatively steady and the outlook for Australian financials remains negative.
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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