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
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 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.
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.”
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’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