In May 2008, a little-known index called the Baltic Dry Index (BDI), which measures freight rates for bulk goods such as iron ore, coal and soya beans, began to plummet. By the time the index had bottomed in December of that year it had shed 94% of its value, making it possible to rent a 1,000-foot ore-class ship for less than the cost of the fuel it would burn if left to idle for one day. But, more crucially, it also sent a signal to the financial markets of the oncoming global recession.
| "The BDI can be distorted by all sorts of factors specific to the market that have nothing to do with commodities" Julian Jessop, Capital Economics |
It has been closely watched ever since. So when the same index fell for 36 consecutive days through June and July – a longer sequence than in 2008 – market participants wondered whether it could be foreshadowing a double-dip recession, and the possible collapse of asset prices.
Investors were most concerned about what the index was telling them about China, the engine room of a global economy, which has helped underpin commodity prices in recent years.