In last weeks's Economist, there was an article titled 'Baltic dries up', which pointed out that the Baltic Dry Index has fallen 60% in its longest streak of consecutive declines for nine years - 34 days running as of July 14. This index is the main measure of shipping costs, and for the past 2 decades has been used as a guide to what is happening in world trade; So is it signaling trouble ahead?

The index spiked in 2008 as China's imports of commodities soared at a time when the supply of ships was constrained and port congestion added to demand for capacity. The financial crisis soon caused the index to fall back, but not before this period of dramatic growth in demand from China had prompted a surge of orders for bulk carriers. Giant cargo ships take about 3 years to come on-stream, and the new ships are now flowing in, adding to an oversupply of ships. So is the index saying more about its ships than the demand for their cargoes?

As we approach the last hour of trading, North American indices are in the green as the market is focussed on more on corporate earnings and less on economic data. Short covering also seems to be fueling the rally.

GB