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Current Financial Market Signals - May 2018

Set out below is the latest colourful dashboard updated from 17 May 2018 by one of our research partners, Ineichen Research & Management (IR&M).


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 were positively biased. Over the past five updates the positive-negative change ratio was 22:67, i.e., a negative bias. From 62 regime tests in this update, 47 (76%) were positive vs. 61% in our last update.

  • Economic momentum continues to turn negative. Macro surprises in Eurozone and Japan remain negative

  • Earnings momentum remains positive, stalling in emerging markets.

  • CPI and PPI are trendless.

  • Notable this month is the NY Fed puts a recession probability at 11%.

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?

Little has changed since April 2018. The sum of ticks (below) rose by 1 to 37 still well off the all-time high of 57 in January. The sum of ticks had been gradually increasing from February 2016 to January 2018, reversed and now is falling, generally.

April 2018 bottom line tally:

What about Australia?

According to Ineichen’s data, economic momentum in Australia continues to worsen. Macro surprises continue to be negative and earnings estimates have not changed. Changes over the past four weeks were negatively biased. GDP forecasts have been stable.

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).

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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