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.
