Something strange is happening in the global economy right now

Everyone seems to be focussing on the equity markets recently, but equity markets haven’t really moved much over the past one month. Over the past month, major equity markets have lost between 1.5% to 4%.

The real action is in bonds and commodities. And trade seems to be flourishing too.

10-year government bond yields of major economies are lower by 5% to 40% (in relative terms not absolute terms) in just the past month. 10-year German bonds are down 12 bps over the past month. That wouldn’t sound much but they are down 28% from 42 bps to 30 bps. U.K. yields are down 8%, U.S. yields down 5%, Japanese yields down 40%. Even Greek yields are down 20% over just the past month. Does the market anticipate a pause in interest rate rises? It would appear so.

Meanwhile, Global Trade seems to be flourishing despite the tariffs rhetoric. Although Q2 (April to June) numbers won’t be known for some time there are some proxy indicators which seem to indicate major trade movement. Firstly, the Baltic Dry index (which tracks movement of major commodities over shipping routes) is up 31% over the past month and 54% over the past year. Secondly, export inventories seem to be low in major export markets like Germany and Japan. Data from China is unknown. Thirdly, import duty collections in major import markets such as the U.S. are rising, and this is before the changed or increased tariffs came into effect.

Commodities are rising too. Oil is up 57% over the past year but the biggest surprise is in increased prices and increased demand for construction related commodities.

Lumber or Timber is up 55% over the past year and Asphalt or Bitumen is up 35% over the past year. Even coal (which is one of the key raw materials) for steel production is up 45% over the year. Steel and Aluminium prices are up over 10% over the past year.

Cobalt and other key input raw materials for electronics are up 30% over the past year. Even Sodium carbonate or Soda ash is up some 27% over the year. Although soda ash has many uses, it is used in a major way in the manufacture of glass and demand for glass is soaring too.

China has stopped importing waste (mainly plastic) from around the world to recycle from January 1st this year to reduce pollution in the country. And that move has had a major impact on shipping rates. Typically, Europe to China shipping charges for containers on big ships used to be a third of the shipping charge for the China to Europe route. The prices are now a forth with lesser things to export back to China. There has also been a notable increase in prices for plastic related goods as end to end recycling rates are reducing.

All this is great but there are at least some downsides to synchronized global growth.

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