The Baltic Dry Index is a very impor­tant indi­ca­tor of the health of trade glob­ally, as it mea­sures ship­ping activ­ity in dry cargo.

Take a look at the chart below: Accord­ing to the BDI, one of the purest eco­nomic indi­ca­tors, the activ­ity of ship­ping dry bulk cargo, mainly con­sist­ing of com­modi­ties such as coal, steel, iron ore, and cement, has almost com­pletely ground to a halt, as indi­cated by the crash in the index's value.

The BDI offers a real time glimpse at global raw mate­r­ial and infra­struc­ture demand. Unlike stock and com­modi­ties mar­kets, the Baltic Dry Index is totally devoid of spec­u­la­tive play­ers. The trad­ing is lim­ited only to the mem­ber com­pa­nies, and the only rel­e­vant par­ties secur­ing con­tracts are those who have actual cargo to move and those who have the ships to move it. ^[1]

Another inter­est­ing fea­ture of the BDI, is its high cor­re­la­tion to equity mar­kets. Take a look at BDI vs. S&P500 and FXI (China 25 Index iShare), Crude Oil and Copper:

Baltic Dry Index vs. S&P 500

Baltic Dry Index vs. FXI (FTSE Xin­hua 25 Index iShare)

Baltic Dry Index vs. Crude Oil

Baltic Dry Index vs. Copper

We'll keep an eye on credit mar­kets, and the Baltic Dry Index as indi­ca­tors of the vital­ity (or lack thereof) of the econ­omy and mar­kets and keep you posted.

As goes the BDI (a lead­ing indi­ca­tor), so goes the econ­omy, and per­haps equity mar­kets (and com­modi­ties, we might add).

At the time of the pub­lish­ing of this arti­cle, the BDI stands at 663 pts.

Read more from the author/contributor here.

Comments

Comments are closed.