Strong Sentiment Boosted by Short-Term Fundamentals

The Baltic Dry Index (BDI) has been moving on a very strong uptrend over the past several weeks boosted by favorable short-term fundamentals. That was of course the case for most of the summer 2021. Recently the Index surpassed the 4,200 level but it lately traded around 4,130 points.

In the immediate previous period, the Index traded around 3,650 points in mid-August 2021 versus 3,281 points on August 4, 3,058 points on July 21st, 3,179 pts on July 5th, 2021, but also compared to 2,420 pts almost 4 months ago, around May 2021.

A few points worth to mention or questions to be asked are the following:

  • Short-term fundamentals such as transportation cost, the bottlenecks in global ports and the commodity dynamics are in favor of a continuation of the current trend;
  • On the other hand volatility is there but for the time being seems to be an ally to the ever growing bullish market sentiment;
  • There are many factors still unknown like how much of the latest upswing is based on fundamentals and how much is based on pure expectations coupled with a lot of speculation;
  • Spot rates have been the major driving force of future expectations;
  • The risk level of currently taking a long position may be not be commensurate with the returns which can be achieved going forward;
  • Given the above, nobody can know how much realistic are these levels compared to the underlying and sustainable over the long-run fundamentals of the market;
  • Finally what could be the “wise” trades in a market which is so bullish in the short-run but can be equally misleading in the longer period?

On top of all of that, let’s not forget that the current outlook of the market has emerged from a series of disruptions caused mainly by the Covid-19 pandemic which is still lurking and won’t leave us in peace at least for the foreseeable future. And Covid-19 has given many directions to the markets, not always based on logic and not always aligned.

Source: Bloomberg

FIGURE 1: Baltic Dry Index (BDI) – Last 36 Years up to August 2021     

[Bloomberg ticker: BDIY:IND, BDI Baltic Exchange Dry Index]

Source: Bloomberg, Trading Economics, https://www.marinevesseltraffic.com/