Shipping Stock Sentiment
We’ll have to watch this carefully. But if the 10-year interest rate keeps falling from here, we won’t be surprised at all because the copper/gold trend has been warning us it would.
Chiswick, West London
Wednesday, September 17
By Tom Dyson, Investment Director
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Please look at this chart of the copper price, expressed in terms of gold, hitting an ALL TIME LOW.
What does it mean?
I publish this chart every month in our Strategy Report because it gives a clear market-generated signal for what’s happening in the business world. Copper represents investment and growth. It’s used in almost everything we make. Gold represents saving and aversion to investment. So the relationship between them tells us how the market prices the odds of future growth and business activity.
Right now, the copper/gold price is pricing in stagnation, low growth and the reluctance of industry to commit to long term investments. Lower rates signify lack of demand for finance. They signal weakness. It is the opposite of the mainstream message that lower interest rates mean stimulus.
Now look at this chart (above) of the US 10-year bond yield over the same time frame. The peaks and troughs are not as obvious on the interest rate chart, but you can see they line up. That’s because long-term interest rates are another market-generated signal of sentiment in the business world.
When long term interest rates fall, they’re expressing falling growth expectations and less demand for leverage and financing. Lower rates signify lack of demand for finance. They signal weakness. It is the opposite of the mainstream message that lower interest rates mean stimulus. It’s not as ‘clean’ a signal as the copper/gold signal, because interest rates are VERY political and get muddied by inflation and other factors. But the two series are clearly related.
Unlike the copper/gold price, the US 10-year interest rate is not moving lower. For now. But nor has it been rising. It’s been stuck in a range between 4% and 5% for the last three years. It’s currently sitting at 4%... and trending lower. We’ll have to watch this carefully. But if the 10-year interest rate keeps falling from here, we won’t be surprised at all because the copper/gold trend has been warning us it would.