Current Financial Market Signals - July 2017

Below is the latest colourful dashboard updated on 6 July 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).

This month the picture (Table 1) is somewhat similar to last months. Almost all major European economies continue to point south. In Australasia, China’s economic trend appears to be declining and on a fundamental basis has reverted. Australian profit estimates for the next year seem to be falling. When compared to the dashboard in January 2017 (Table 2), there have been some noticeable changes to Fundamentals.

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 may be a few more risks, but the increase is ever so small, the number is nothing compared with 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 increased over the last month to an all-time high.

Table 3

What about Australia?

It may not feel like it, but according to Ineichen, economic momentum remains strong and long term momentum in the equity market is generally positive. Earnings estimates have worsened further over the last four months for Materials and Mining.

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).