Posts Tagged ‘Commodities Prices’
Commodities Snapshot
Sunday, December 7th, 2008
If you look closely at the charts for Natural Gas, Platinum, Copper, Silver, you can see that these are experiencing a U-shaped flattening of prices. Oil is continuing on its epic, stronger downtrend. For the time being, there appears to be little support for commodities prices as weakening economic fundamentals, sentiment, negative wealth effects and deleveraging are leading to vicious-cycle demand destruction. A turn in the Baltic Dry Index while still not anticipated would herald a favourable turn in global activity.
Charts: Bespoke Investment Group
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Tags: Activity Charts, Baltic Dry Index, Blog, Br, Chart, Commodities, Commodities Prices, Copper, Dow, Eco, Economi, Economic Fundamentals, Global Activity, Global Investment, Gold, Img, Investment, Investment Group, Lt, Natural Gas, oil, Platinum, Sentiment, Silver, Snap, Snapshot, Vicious Cycle, Wealth Effects
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Baltic Dry Index: A Valuable Leading Indicator?
Friday, December 5th, 2008
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.
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Tags: Amp, Array, Baltic Dry Index, Bdi, Blog, Br, Bulk Cargo, Cargoes, Cement, Chart, China, Coal, Commodities, Commodities Prices, Copper, Correlation, Crash, Credit, Credit Market, Credit Markets, Crude Oil, Debacle, Dow, Dry Cargo, Eco, Economi, Economic Indicators, Economy, Equity Market, Failure, FTSE, Ftse Index, Ftse Xinhua, Fxi China, Glimpse, Grains, Health, Img, Infrastructure, Investment, Iron Ore, Ishare, Issuance, Leading Indicator, Lehman Brothers, Loc, Lt, Markets, Measures, Member Companies, oil, P500, Php, Precipitate, Raw Material, Relevant Parties, S&P 500, S&P500, Shipping Activity, Time Glimpse, Trading, Value, Vitality
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10-Yr+ US Treasury and Canada Yields Falling
Monday, December 1st, 2008
During the December 1st liquidation of stocks, the yield on 10-Yr. US treasury securities fell to 2.81%, a level not seen since 1954. Incidentally, during the 1935-1955 period, the yield on these was at levels far below current levels, this being the period following the collapse of the US financial market post circa 1929.
With the bond market rallying in the longer durations, its hard to NOT see how this plays right into the hands of the US government’s needs for long-term funds to pay for a trillion-dollar war and a trillion-dollar plus bailout, not to mention just staying in business.
Bloomberg says: Yields on two-, 10- and 30-year debt dropped to levels not seen since the U.S. began regular sales of the securities after Federal Reserve Chairman Ben S. Bernanke said the central bank may purchase Treasuries and target long-term interest rates to combat the deepening recession.
Which once again begs the question:
What incentive does the US Government have for reviving the equity market, except to levels which keep some hope alive? Not much, right now.
With investors being crowded out of equity markets by continuing volatility and losses surmounting from deleveraging, it should eventually be a snap for Washington to amortize very sizable short term obligations by selling bonds to fleeing investors. Bernanke is merely pointing out the obvious in a roundabout way.
Debt is the new equity. Why would you bet against the Fed? This is the direction they have been moving us in, deliberately.
Canada Long Bond Yields Falling
By the way, the 30-year Canada rates fell from 3.97% last week, to 3.76% today, in the face of the 9% drop in the TSX. Until 5 months ago, the Canadian economy was bolstered nicely by rich commodities prices. Now that commodities prices have fallen sharply and fairly quickly, Canadian investors haven’t yet adjusted to the reality that Canada is in recession too, and given that, it is likely the long-term Canada yields will fall. Our three key industries are now dealing with a slump; autos, financials, and commodities.
Which is the likely scenario over the next one to two years: Long-term Canada Yields go up, sideways, or down, given that Canada is entering a full-blown recession?
Bloomberg says: The yield on the two-year bond declined 12 basis points, or 0.12 percentage point, to 1.59 percent at 4 p.m. in Toronto, the lowest since Bloomberg records began in 1989. The price of the 2.75 percent security due in December 2010 rose 23 cents to C$102.29.
The 10-year note’s yield fell 19 basis points to 3.13 percent, also the lowest since at least 1989. The price of the 4.25 percent security maturing in June 2018 climbed C$1.66 to C$109.18.
“Long-term rates are playing catch-up in terms of the decline in yields we have seen in short-term bonds,” said Mark Chandler, RBC Dominion Securities Inc. “There is limited downside in short-term yields,” he said.
“The relatively greater drop in yields on long-term bonds compared with short-term bonds is a theme that could continue into the first half of 2009,” Mr. Chandler said. “This is known as a yield curve flattener,” as the spread between the short-term and long-term rates narrows.
Currently, Canada’s yield curve is steep, defined by short term rates near zero percent, and 30 year rates, which closed today (12/01) at 3.761%, down 21 bps from last Thursday (11/27) morning.
As Hugh Hendry recently put it:
“I withdrew my hard-earned money from a bank this summer. But it may surprise you to learn that I bought government bonds of long duration. Surely I should have bought gold? Except that I believe the way to make money is to seek opportunities through paradox.
And therein lies our brinkmanship: everyone has skipped our story and read the conclusion. They fear financial anarchy. Gold coins are sold out. Everyone is in. And yet the price of gold has fallen this year. So, for now, I would stick with the bonds. The 18-year British gilt yields 4.8pc but, with the Bank of England likely to follow the Fed and slash rates to 1pc, I believe we could see gilt yields below 3pc.
And I promise you that if bond yields broke 3pc there would be a stampede to buy. At this stage gold might trade close to $500, and those who missed its rally from 2002 would have the solace of schadenfreude when in reality they should be buying the stuff and selling their bonds. What delicious irony: deflationists and inflationists could both claim to be right. But how many will have profited?”
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