Global Trade Tell – Tale

Global trade, the life-blood of economic growth, is slowing and its slowing fast, as evidenced within two charts that we present this week, which also questions the “global growth myth” being trotted-out by policy-makers.

Tell 1: Is the Baltic Dry Index, an economic indicator issued daily by the London-based Baltic Exchange as an assessment of the price of moving major raw materials by sea over 23 shipping routes, such as coal, iron ore and grain. As seen below, its price peaked in mid-2008 at $9600, since when the price has collapsed to last week’s sub $500 level, pressured by two of the worlds three densest trade lanes, intra-Asia and Asia-Europe and despite 5% of the global fleet being idled to offset overcapacity concerns.

To put this in context, the recent low of $498 rate is the lowest since Bloomberg records began in 1985 which includes the early 1990s and 2000s recessionary periods.

26 Nov 15 Blog 2.

Overlaid is a record of annualised China exports, which have also collapsed due to the global over-capacity, fuelled by the global debt binge.

Tell 2: Lest you think that the US is immune from this, we present a second chart, The Dow Jones Transportation Index, formally known as the railroad average with a history going back to October 1896, is a price-weighted measure of 20 transportation stocks, including the likes of FedEx and Union Pacific, along with various airlines such as Delta, thus includes road, rail and air.

Note that the all-time high for the index was hit one year ago, in November 2014, since when price has trended lower, triggering a “death cross” in mid-June of this year, when the 50-day moving average crossed below the 200-day, a very bearish event in charting terms. Despite a spirited rally attempt of late, price has yet to climb back above the moving averages, thus remains bearish.

26 Nov 15 Blog 1.

Finally, the recent tragic escalation of the “war on terrorism” certainly won’t help trade as the Schengen agreement, the open borders treaty of 1985, looks set to fall apart as six of the EU 26 countries who signed up to it have re-imposed passport controls, thereby hiking the cost and inconvenience of “doing business” within Europe, just as the pace of doing business is grinding ever slower.

A Tell-Tale is something that indicates or reveals information; a sign….here are three!

 

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