Current Financial Market Signals - March 2018


Below is the latest colourful dashboard updated from 16 March 2018 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. Changes vs last update are circled.

The key take outs from this month are:

  • Overall changes were negatively biased. 92% of regime tests in this update were positive, compared to 97% in the January update.

  • Economic momentum remains mostly positive. OECD’s leading indicators are still rising, but only mildly, for the first time in a while, risers and fallers were balanced. Business and consumer sentiment are high but falling, generally.

  • Earnings momentum remains positive.

  • Notably, the US is improving structurally, with a US recession probability rising.

  • Australia remains at an inflection point. Although macro surprises turned positive in January, there were back to negative in March.

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?

Risk is generally rising- although liquidity is still ample, funding costs and funding risks are gradually rising. Clearly volatility is returning to the markets, although notably inflation through CPI and PPI are still largely absent and in fact inflation expectations for the global economy fell sharply.

Long term price momentum of UK and Eurozone equity indexes turned negative, whereas economic momentum for China is rising.

February 2018 bottom line tally:

What about Australia? According to Ineichen’s data, the earnings estimates have not changed since February. Long term price momentum remains mostly positive, except for the Financials sector (being our largest sector!).

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).

Disclosure Statement: This communication has been approved and issued by Sovereign Wealth Partners Pty Ltd ABN 18 607 071 367 Corporate Authorised Representative (No. 001233909) of Bennelong Wealth Partners Pty Ltd ABN 44 164 127 833, AFSL 456235.

General Advice Warning: Any advice included in this article and associated links is general in nature and does not take into account your objectives, financial situation or needs. If a product we recommend has a Product Disclosure Statement (PDS), you should read it before making a decision. Past performance is not a reliable indicator of future performance. We do not endorse any information from research providers that we provide to you, unless we specifically say so.

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