This chart pack covers plunging shipping costs, impact of armed conflicts on US equities, slide in global equities led by Russia and Ukraine, shorting of Russian currency, rise in emerging market bond yields, emerging market trade openness, decline in Eastern Europe foreign investment and slowing economic activity in emerging markets
This chart pack covers:
Plunging shipping costs
The Baltic Dry Index is one of the most popular indicators for analysing the shipping market. It tracks the freight cost for dry bulk shipping, i.e., commodities, and as cargo ship supply changes little over the short-term, the Baltic Dry is commonly used as a leading indicator for future demand.
This chart shows a significant decline in the index over the last few weeks. Given the reduced number of vessels anchored and at berth at Los Angeles harbour, this seems to indicate that supply chain problems are finally being resolved. Or maybe excess demand is easing as economic activity weakens.
Armed conflicts and US equities
In this next chart, we performed a slice analysis on the S&P 500 to show equity performance following after the start of armed conflicts. As you can see, equity indices typically start declining even before fighting breaks out – not surprising since stock markets tend to be forward-looking. What’s interesting here, however, is that the conflicts over recent decades have had little impact on US equity markets in the short term. We shall see whether the trend holds as Russian troops pour into Ukraine…
Tip: You can use the change region function on benchmark equity index data.
Russia and Ukraine lead fall in global equities
With global equities, on the other hand, we can see a noticeable price correction since the start of the year – with Ukraine and especially Russia seeing the biggest declines. The Russian economy had already been underperforming for a long time and impending sanctions from the West will likely squeeze it further. Also bear in mind that despite being a formidable military power, Russia’s economy is smaller than that of Texas.
Investors short the ruble
Futures positioning shows investors are taking large net short positions in the Russian currency. The conflict with Ukraine will further push down the value of the ruble, which has already declined by some 8% since October 2021.
Ukraine and Russia lead jump in yields
The next charts several charts use data from JPMorgan that can only be accessed with a subscription via a Macrobond premium dataset.
Yields have been rising across all emerging markets, thanks partly to rising interest rates. But again, Ukraine and Russia are leading the phenomenon.
The table below, based on JPMorgan indices, shows the year-to-date value change ranging from just 25bps in Turkey to almost 400 bps for Ukraine.
Emerging markets trade
Delving deeper into emerging markets, the following chart ranks them by trade openness: the sum of imports and exports divided by GDP.
Hong Kong and Singapore are the most open by far but it’s interesting to see that Russia is more open than other large economies such as China.
Eastern European markets losing out
Eastern European economies obviously have the largest exposure to Russia and are set to suffer most from the conflict in Ukraine given their historic trade and financial links.
With Western sanctions about to make it harder for Russia to access global capital markets, it is interesting to see Eastern Europe’s “vulnerability” to foreign investment in general. As the chart below shows, the percentage of public debt held by foreign investors has fallen considerably over the years, particularly in the last two.
Economic activity slows in emerging markets
Even before the start of the Russian-Ukraine conflict, there have been signs of weakening economic activity across emerging markets. Manufacturing PMI data shows the extent of the slowdown in the last three months.
The slowdown is also visible in high-frequency data.
The OECD’s weekly economic indicator, based on Google trends data and machine learning, is a good tracker of economic activity.
In the chart below, we show the two-year change in weekly economic activity compared to eliminate the potential one-year base effects that could distort the picture. In the bottom pane, we show the difference compared to a hypothetical non-pandemic world.
As you can see, weekly economic activity is showing a slight decline across four key emerging economies: Brazil, India, Russia and South Africa.
Tip: You can use the change region and duplicate function on OECD data.