Monday, June 01, 2009

What's the Baltic Dry Index telling us now?

Saw an interesting tweet from Maoxian over the weekend on the (extreme) inflationary signals that the Baltic Dry Index seems to be giving us.

Have a look at the chart in Maoxian's tweet. I wonder if any of us have ever seen such a devastating decline (-94% drop), followed by such an amazingly quick and robust (BDI is up 427% since its Dec. low) recovery move?

Regulars here at Finance Trends may recall our past discussions of the Baltic Dry Index and its increased use as a gauge of global economic activity. So what is the BDI be telling us now?

Our March 23rd post (previous BDI update) focused on the relationship between (then) recent moves in the price of copper vs. the Baltic Dry Index.

At that time, copper prices were steadily moving higher, despite analysts' claims that the move up was not supported by "real demand"; the move up was supposed to be driven more by a temporary restocking of strategic inventories by the Chinese. I wondered, at that time, if copper would soon run out of steam and follow the dip then underway in the BDI.

As it turns out, both copper and the Baltic Dry Index have continued to move higher since that time. Take a look at this updated chart (courtesy of below.

So what is the recent strength in Dr. Copper and the Baltic Dry Index telling us now?

Have, as Maoxian recently suggested, the central bankers let loose an inflationary tidal wave? Or are we also starting to see some pick up in base metals prices and dry bulk shipping activity as China's economy expands and the dollar declines?

Related articles and posts:

1. Copper jumps to 7 month high on dollar, China - Bloomberg.

2. Commodities on a record rebound - The Australian.

3. Dry bulk market smiling again - Helenic Shipping News.

4. Dr. Copper is in the news again - Finance Trends.

5. Commodity currencies: follow that ship! - Finance Trends.