Three Key Economic Indicators Flash Big Red Warnings Signs

Three Key Economic IndicatorsOil, Copper, and Trade Suggest Severe Global Economic Slowdown in 2015

When I look at key economic indicators like oil, copper, and the trade among countries, they make a very compelling argument for a severe global economic slowdown in 2015.

Oil Prices to Slump Further

In June of 2014, a barrel of light crude oil cost roughly $107.00. Now it’s trading well below $50.00—a decline of 60% from its peak. In the chart below of oil prices, it looks as if crude prices have fallen off a cliff.

Light Crude - Spot Price (EOD)

Chart courtesy of www.StockCharts.com

From a strictly technical perspective, there’s more room on the downside for oil prices. The price of oil has fallen well below both its 50-week moving average and its 200-week moving average—suggesting severe pessimism toward oil prices. At the same time, momentum indicators (shown at bottom of the chart above) suggest sellers are in control.

Sure, we’ve all read the stories on the Internet about the U.S. making a deal with Saudi Arabia to lower oil prices to hurt Russia’s economy in retaliation for Russia’s invasion of Ukraine. But the motive for lower oil prices is not as important as its effects. Oil prices below $50.00 a barrel put pressure on: 1) financial institutions that have bought oil producer hedge contracts; 2) the profits on senior oil products; and 3) America’s shale oil boom. All three of these events can put downward pressure on the U.S. economy.

Copper Prices Plunging, Too

Oil prices aren’t the only indicator suggesting we have a global economic slowdown in the making. When we look at copper, the situation looks bleak there, too. The chart below shows copper prices have been declining since March of last year.

Copper - Spot Price (EOD)

Chart courtesy of www.StockCharts.com

As copper prices decline, there has been a huge increase in copper inventory levels, which is very worrisome. In August of 2014, the copper warehouse level at the London Metal Exchange (LME), the world’s biggest market for base metals, stood at 140,000 tonnes. Now there is an inventory of 187,000 tonnes—an increase of 33% in a matter of months. (Source: Info Mine, last accessed January 12, 2015.)

Copper is used in many sectors. When copper prices decline and copper warehouse levels increase, it tells me companies in the global economy are nowhere near running at full capacity.

Baltic Dry Index Now at Same Level as 2008

I follow the Baltic Dry Index (BDI)—an indicator that gives me an idea about how trade looks on the global level. If the BDI increases, it means we are marching towards prosperity. If it declines, that’s troubling news.

The BDI has fallen significantly. Please look at the long-term chart below. It currently sits near the same level it was at back in 2008, when the global economy was in an outright depression.

Baltic Dry Index (EOD)

Chart courtesy of www.StockCharts.com

What’s Next for the Global Economy?

While we hear good news about the U.S. economy, the problems brewing in the global economy can and will cause havoc here. We do not exist as an island; American companies earn a significant amount of revenue from outside the U.S. and they are heavily invested there.

As goes the global economy, eventually so will the U.S. economy and its key stock indices.