What does the Baltic Dry Index tell us about the Global Economy ?

What does the Baltic Dry Index tell us about the Global Economy ? As on 15 June 2020. CMP 923.

The Baltic Dry Index is used as a proxy to measure the health of the global economy in terms of shipping and global trade.

From Wikipedia “The Baltic Dry Index (BDI), is issued daily by the London-based Baltic Exchange. The BDI 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.”

The Baltic Dry Index began in 1985.

Note the collapse during the financial crisis of 2008 / 09 from almost 12,000 to 663, a monumental, gynormous crash of 94% in just 6 months.

This was followed by a subsequent choppy decline to the Feb 2016 low at 290.

And then most recently, just last month, a secondary low formed in May 2020 at 393.

 


So now the intro to BDI is out of the way, what does the future look like ?

Current Price is at 923.

The Baltic Dry Index has rallied from 393 from Mid-May 2020, to 923 now in Mid-June 2020, i.e. more than double, in a matter of the last 4 weeks.

This is bullish.  It is supported by 2 chart patterns.


A possible Head & Shoulders.  For this the neckline needs to be broken at 2500-2600 to confirm the larger trend has turned up.

The Rounded Bottom (Saucer) : This gives us advance notice that the trend has possibly turned up. This also gives us 2 important support levels, roughly 400 and roughly 300.  A decline thru these, especially 290 would negate this pattern.  But as long as they hold, continued upside is the expectation.

Conclusion : In the midst of the pandemic gloom and fear that Covid-19 has unleashed, it is possible the charts are telling us to be prepared for a lightening of the mood, and of better times ahead.  Note these charts are of at least monthly duration, so there could still be several more months of uncertainty.

This index is by not means infallible, nothing is.  It could be interpreted as just one piece of a larger jigsaw.

Could this mean the Pandemic, and tensions between the U.S. and China, are nearing an end ? Will global economies see a sustained upturn ?

In these strange times – if a global shipping index that most of us don’t bother with, is providing us some hope – we will take it.