By Robert Shiller
By Robert Shiller
“We will not bet this company,” said BHP Billiton CEO Chip Goodyear this week, while presenting record group results for the year to June 30, 2005. The world’s biggest diversified resources company posted a bottom line profit of $6.5-bn for the year, a growth of nearly 90% on the previous year’s figure.
On the question of betting, Goodyear was referring to a graph which shows that despite the monster profits delivered by BHP Billiton, commodity prices are barely out of the starting blocks from 200-year lows.
Goodyear’s amazing graph was compiled from a variety of sources, including the US All Commodities Producer Price Index, US Consumer Price Inflation, US Bureau of the Census, Historical Statistics of the United States, and the Colonial Times, to 1970.
Goodyear stressed that the graph needed to be looked at “quite carefully.” A small move on the graph, Goodyear explained, “is actually several decades.” According to the graph, “today we find ourselves at a period of time which is, or rather close to it anyway, 2001/2002 when real commodity prices were the lowest they’ve been in the last 200 years which essentially puts them at the lowest price they’ve been in known history.”
It is irrefutable that news or economic data can elicit a sharp reaction from currencies and other financial markets. However not all economic data is created equal. The monthly Non–farm payrolls for example has had a far bigger impact on the US dollar than other perennial top market movers like consumer prices. Indicators rarely keep their same level of influence over a currency though; so it common to see major shifts in the top ranking from year to year. Continue reading “Most important market moving indicators”
Developed European markets are at the global centre. Since 2000, France is central node of European markets (used to be Germany before 2000). US links a cluster of North American and South American countries (except Peru) to France, via Germany. Interestingly, US market dominates globally in market value, but has only a loose linkage to other markets. Japan only became linked to other Asian markets since 2001, before that it was more linked to Western markets. South Africa, Turkey and Russia cluster emerged in 2000 and stays reasonable stable since then.
|North America||white diamonds|
|South America||grey squares|
Over the period studied, December 1998 – May 2005, the chart below shows the correlation grouping of around 60 currencies (including gold, silver and platinum) using the US dollar as the base currency. The distance between pairs represents correlation values where the smaller the distance the higher the correlation.
This intra-day anomaly existed for a very long time, but has weakened the last few years in the course of the continued upward trend in prices. The attached chart shows the average intra-day trend of all days for which there are high numbers of price fixings. The right axis shows the price, the bottom scale the time of day. The average is calculated by taking the minute by minute prices throughout the day from about 2000 days and consolidating them as a single day. Thus this so-called intra-day seasonal chart shows at a glance how intra-day prices behaved over the last eight years.
Clearly visible is the price decrease at the time of the London afternoon fixing. The minor lows near the morning fixing as well as the open and close in New York are all worth noting. Also conspicuous is that during American market hours the price generally trends sideways, in contrast to the rest of the time when it is moving upwards.
The BIS calculates effective exchange rate (EER) indices for a total of 52 economies (including individual euro area countries and, separately, the euro area as an entity). Nominal EERs are calculated as geometric weighted averages of bilateral exchange rates. Real EERs are the same weighted averages of bilateral exchange rates adjusted by relative consumer prices. The charts below are indexed at a 100 for the year 2000.