[vc_row][vc_column][vc_column_text]Today, it’s more evident than ever the direct correlation between the global economy and the course of the shipping industry. As such, the future course of the market is directly affected by the course of the global economy as well. At the moment though, there are mixed messages prevailing in the market, as decision makers split opinions between bulls and bears in the market, with each holding a strong stance as to their separate views and where we go from here.
According to the latest market report from shipbroker Allied Shipbroking, “the main focus this week is turned towards the decisions Ms. Janet Yellen will take on Wednesday with regards to interest rates. Up to now many have held the view that the decision is easy to take given the published figures we have seen in terms of the prevailing unemployment rate in the US (which has levelled down to 5%, a figure which many see as the lowest that can be sustained right now) and the higher growth rate noted in the average hourly pay rise (which reached a full 4% in the third quarter, giving an annualised figure of around 2.8%)”.
George Lazaridis, Head of Market Research & Asset Valuations with Allied Shipbroking noted that “it is no bed of roses however, as inflation has remained close to some of the lowest levels noted, mainly due to the strong drop in commodity prices, while even when you take on only core inflation (excluding energy and food prices) this figure still lingers at around 1.3%. The danger here is that instead of further boosting economic growth it could suffocate it in its tracks”.
Lazaridis noted that “the decision is a hard one as such and is one that will be closely watched more than any other such decision made by the Fed in the past. In the case that a decision is made for the motion of increasing rates now even by a small amount, we will have to take particular note on how the emerging markets will react. With most of these economies still heavily dependent on the commodity markets, any increase in their dollar denominated debt would surely cause havoc, as they try to manage their ever decreasing cash inflows. At the same time, if markets take the view that the rate in-crease is higher than needed at the current moment, it would also push for a sharp exodus of investment from most of these economies, as many investors reshuffle their “bets” over to the U.S. dollar and its seemingly better returns. This in part has been further bolstered as a scenario, as the U.S. dollar has already risen by 19% since mid-2014, giving a forward momentum that could be difficult to counter.
It’s worth mentioning that a further strengthening of the U.S. dollar would create headaches back home as well as the Fed would have to deal with further drops in core inflation”, said Allied’s analyst.
He added that “at the same time all these troubles will have to be faced by shipping at a time when commodities remain in a “sink hole”, being put under constant pressure as the world’s biggest miners and oil producers, further ramp up their production adding extra ca-pacity to the supply glut, in an effort to take on more market share. This might be more manageable in the oil business were demand is bolstered by low prices, but in the iron ore and steel trade this excess supply has already drowned the market. Of note is the recent figures coming out of China, where we noted exports of steel in the last 11 months toping the 100m tonne mark which is more than most countries (except Japan) produce on their own within a year.
Taking a more optimistic view, many of the “bulls” have pointed to a stronger demand growth (albeit at a slow rate) from the developed economies and in particular the U.S. As such they see it as a driver which could be indicating towards a steady growth in the global trade of goods and services of as much as 3% within 2016 and move on towards the 5% from 2017 onwards. As good as this sounds, it would still be the case we would have to buckle up for 2016 as the knock on positive effect on the trade of raw resources, such as iron ore, would be felt with a considerable delay”, he concluded.[/vc_column_text][/vc_column][/vc_row]
