Dr Cop­per et al on why a re­turn to eco­nomic health is far from se­cure

Mixed mes­sages over the re­cov­ery mean we are a way off declar­ing the job done, says Louis Ash­worth

The Daily Telegraph - Business - - Business -

It’s not been hard to quan­tify the eco­nomic dev­as­ta­tion caused by Covid-19. Across the globe, gauges of ac­tiv­ity, de­mand and out­put chalked up record falls as the virus dealt a body blow to in­dus­tries and con­sumers.

Of­ten, those were fol­lowed by new records: bounce-backs of un­par­al­leled speed and strength that have pro­voked de­bate among economists about the shape of the cur­rent re­cov­ery.

Re­ceived wis­dom sug­gests a fresh eco­nomic shock prompted by a sec­ond wave of the virus would be more pro­found than the first, with gov­ern­ments and cen­tral banks hav­ing al­ready ex­hausted a huge amount of am­mu­ni­tion in stop­ping a melt­down ear­lier this year.

Against the loom­ing threat, these five in­di­ca­tors sug­gest a full re­cov­ery re­mains some way off – with signs that the come­back has run out of steam.

Cop­per

Cop­per is some­times known as “Dr Cop­per”, due to its abil­ity to in­di­cate the health of the global econ­omy.

If it truly de­serves that ti­tle, the signs are good: prices have re­cov­ered strongly over re­cent months, ris­ing about 40pc to eas­ily shake off the falls prompted by coro­n­avirus.

Cop­per is prized for its con­duc­tiv­ity, mean­ing it is used in wiring for houses, cars and elec­tronic goods.

The metal has ben­e­fited from the push-pull of fall­ing sup­ply and ris­ing de­mand. Min­ers such as Antofa­gasta have seen their out­put drop as the virus forces new safety steps, while Chi­nese de­mand re­mains vo­ra­cious. Taken to­gether, those fac­tors might have left cop­per look­ing bur­nished. ING’s Wenyu Yao, a se­nior com­modi­ties strate­gist, says the sup­ply-side risks are be­gin­ning to fade – which might give a truer pic­ture of the state of play for the metal.

Panama Canal

The Panama Canal is the most im­por­tant route for ship­ping be­tween the US and Asia.

More than 3pc of the world’s to­tal ship­ping uses the wa­ter­way, ac­cord­ing to rat­ings agency Fitch. The canal saw

ves­sel tran­sit counts take

a heavy hit, drop­ping to a four-year low of 845 in June. Those num­bers re­cov­ered some­what last month, with ini­tial Au­gust fig­ures in­di­cat­ing a fur­ther im­prove­ment. But cruise ships keep can­celling their slots, the port told Bloomberg – and the liq­uid nat­u­ral gas trade needs more time to re­cover.

Baltic Dry In­dex

Born out of the Baltic Ex­change – which was founded in 1774 by mer­chants in Lon­don – the Baltic Dry In­dex mea­sures the cost of mov­ing ma­te­ri­als by sea, based on rates paid for four classes of cargo ships. Broadly, that means it tends to re­flect sup­ply and de­mand for goods such as met­als, coal and agri­cul­tural ma­te­ri­als – and es­pe­cially iron. The in­dex’s per­for­mances are far from con­sis­tent, but 2020 started out look­ing a lot like 2019 – with a fall in Fe­bru­ary as Chi­nese fac­to­ries were closed for the lu­nar new year hol­i­day.

It jumped strongly in June and July, be­fore wa­ver­ing slightly. So does that point to a come­back in global de­mand?

“At first glance, the re­bound seems to be quite sig­nif­i­cant, but it fol­lows a deeper and pro­longed con­trac­tion [last spring],” says Saxo Bank’s Christophe­r Dem­bik. “In other words, it would be mis­lead­ing to see any V-shaped nar­ra­tive in this re­bound.”

Cater­pil­lar

As the world’s largest con­struc­tion equip­ment man­u­fac­turer, Cater­pil­lar is of­ten seen as a bell­wether for global in­dus­try. Like so many oth­ers, the Illi­nois-based group’s shares took a heavy hit in Fe­bru­ary and March. It has steadily bounced back, but is lag­ging the wider S&P 500 in­dex on Wall Street (which reached a new record high on Tues­day) and ap­pears to be plateau­ing – sug­gest­ing in­vestor con­fi­dence may be stalling.

In a con­fer­ence call last month, boss An­drew Bon­field said Cater­pil­lar does not ex­pect a quick re­cov­ery in de­mand.

Google Mo­bil­ity

Google’s mass of data on user travel paints a mixed pic­ture: travel to work­places, af­ter what looked like a steady re­cov­ery, has plateaued – and gone into re­verse in some coun­tries.

The UK has lagged be­hind in get­ting back into work­places, with in­vest­ment man­ager M&G the lat­est to tell its staff they should not ex­pect to re­turn un­til 2021. Like so many other ar­eas, the fu­ture trajectory is tied to the virus.

‘At first glance, the re­bound seems to be quite sig­nif­i­cant, but it would be mis­lead­ing to see a V-shaped nar­ra­tive’

Build­ing equip­ment maker Cater­pil­lar is a bell­wether for global in­dus­try, as is the Baltic Dry In­dex, which mea­sures the cost of trans­port by sea

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