Record Baltic Index Reveal Signs of Vibrant Global Exports?

``Firmer currencies also would help Asia kick its addiction to exports. The best way for the region to raise living standards is to move upmarket -- away from the cheap export model of the past toward greater entrepreneurship. Weak exchange rates leave fewer incentives to make that transition.”- William Pesek Jr., Bloomberg Asian Analyst

Another indicator that allows us to be bullish is the continuous surge of the Baltic Dry index, an indicator which reflects on the trading activities of raw materials or of basic commodities.

The Baltic dry index is an index which covers dry bulk shipping rates. According to the Baltic Exchange, the index provides:

``an assessment of the price of moving the major raw materials by sea. Taking in 40 shipping routes measured on a timecharter and voyage basis, the index covers supramax, panamax and capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.” (Wikipedia.org)

Figure 5: investmenttools.com: Baltic Dry Index and Crude Oil confirming robust global growth?

Figure 5 courtesy of investmenttools.com manifests of the vigorous activities in global arena, resulting to high freight “dry bulk” rates and oil prices, which lend credence to our belief that the global economy remains resilient in the face of the softening US economy.

Moreover, according to Dr. Ed Yardeni global exports story continue to remain vibrant. To quote at length Dr. Yardeni,

``Let’s review some of the latest developments in the global exports story:

(1) According to the IMF, world exports rose to a new record high of $13.5 trillion in the 12 months ending March. They doubled since the start of the decade.

(2) World exports were up 11.5% y/y through March. This growth rate is highly correlated with the y/y growth in non-gold international reserves held by central banks, which is a good measure of global liquidity. This measure was up 21.3% through April, suggesting there is plenty of liquidity available to finance the global export boom.

(3) The BRICs have among the fastest growing export sectors with y/y gains of 15.8% for Brazil, 11.6% for Russia, 18.2% for India, and 25.9% for China. (My comment: Brazil’s real and India’s rupee has far outpaced the Philippine Peso’s advance yet they have been sporting massive export gains!)

(4) The EU is also exporting at a rapid rate with a gain of 20.0% y/y with Germany up 18.0%.

(5) The US has clearly benefited from global trade as exports have risen to a record high of $1.08 trillion over the past 12 months through May. This has been one of the major offsets to the housing recession. More specifically, capital goods industries have enjoyed boom times with their exports totaling a record $425.6 billion over the past 12 months.

(6) Of course, the US has been a big market for foreign exporters with our imports totaling a record $1.89 trillion over the past 12 months, but that’s just 14% of the world exports.

(7) US capital goods industries with record or near-record exports over the past 12 months include aircraft ($42.1 billion), jet engines ($17.9b), excavating machinery ($11.1b), agricultural machinery ($5.5 b), oil & drilling equipment ($12.5b), and generators ($9.8b).”

A caveat is that all these are past data.

However, shipping remains as the key transport used for exports, and thus, the said freight index could help serve as a leading indicator for the health of global trade. According to Christopher Hancock of Penny Sleuth, ``Shipping still serves as the world’s economic circulatory system. This business connects the world in ways technology never will. Roughly 90% of the world’s exports are still transported by ship (highlight mine).”

This means that if we are to compare the enumerated activities with that of the Baltic Chart, the recent vivacious export performances by global economies appears to have been corroborated by the tight shipping activities which resulted to the high prices seen in the world’s shipping index.

In addition, the recent record close by the Baltic Index could further indicate of the salutary growth clip the world could be experiencing today.

Again for as long as there won’t be any ‘shocks’ that could perturb the financial markets, under the conditions stated above we are likely to see more upside gains based on the present reactions of the several leading market indicators, as well as with the current momentum.

Don’t forget your mental stops.