The Baltic Dry Index seems to be signalling declining shipping costs … or foundering trade between the US and China.
The Baltic Dry Index is a composite of the Capesize, Panamax and Supramax Timecharter Averages. It is reported around the world as a proxy for dry bulk shipping stocks as well as a general shipping market bellwether.
Yes, the BDI is measuring some distress for China Imports YoY in USD.
No, that isn’t the SS Minnow foundering.
One day it looks like China and the US are making progress in trade talks, the next day there is no progress. Just like Brexit — on one day, off another. Then there is the Federal Reserve: will they continue raising their target rate and unwinding their balance sheet? Will the Democrats controlled House try to impeach Trump for putting ketchup on his steaks? And “The Wall.” Same old, same old. So many uncertainities.
Hence it is not a surprise that the US Treasury yield and US Dollar Swaps curve remain “kinked”. That is, inverted in the short-end of the respective curves.
It is difficult to keep one’s head on straight with all the uncertainties in the global markets.
Since early November 2018 when the 10-year Tteasury note yield hit 3.24%, both the Treasury yield and 30 year mortgage rate (MBA) have plunged.
Partly to blame is the slowing economies around the globe, particularly in Europe (check out Ford’s announcement of job cuts in Europe: Ford Motor Co. will shed thousands of jobs at its European operations as part of a bid to return the business to profitability with a broad restructuring that could include shuttering factories).
And then there is that 13% YoY decline in China Passenger Car Sales.
So, despite global zero-interest policies (except for the US), global economies are slowing.
It is difficult to push US interest rates higher when the global economy is slowing down.
To be sure, there are a whole host of wild cards that could send interest rates rising again: 1) US-China trade agreement, 2) ending the US government shutdown, 3) resolution of the neverending BREXIT issue, 4) France and Germany’s struggles to raise energy prices (Paris Accord?), etc.
The implied probability of a Fed rate hike in this global environment is pretty low.
And both the US Treasury actives curve and Dollar Swap curve remain kinked.
Will The Fed emulate Frank Booth from “Blue Velvet” and provide more oxygen to markets?