Whisper it quietly, so as not to disturb the world's central bankers as they rest. But the impact of their latest round of quantitative easing programmes (yellow highlight, QE3) may already be slowing. As the chart shows, these had an immediate impact on financial markets from their launch in June:
• The benchmark S&P 500 index is up 12%
• Brent crude oil prices are up 22%
'Don't fight the Fed' has once again proved a profitable theme for traders.
But incomes haven't risen 22% to balance higher crude prices. So, as always, consumers have instead been cutting back on other purchases. As the Wall Street Journal notes, in discussing the lacklustre start to the Q3 US company reporting season:
"The drumbeat of weaker revenue is particularly troubling to investors looking for a read on the health of the global economy because it reflects underlying demand. Companies have a lot of levers to pull to improve profits: They can sell assets, buy back stock or cut costs. But it is hard to improve sales unless consumers and companies spend more of their money.
"The news on that front hasn't been good. U.S. multinationals selling everything from soda to computer chips to industrial gear are reporting that demand remains uncertain, highlighting the precarious state of the global economy and suggesting a recovery will be slower to take hold than had been hoped."
Yet again, therefore, the chemical industry has performed its role as a leading indicator of the global economy, as the blog warned back in August. The chart emphasises just how difficult companies have found it to raise product prices since Brent began its surge.
This latest round of QE may well prove the straw that finally breaks the proverbial camel's back. Consumers simply have no more spare cash to absorb higher prices.
The chart shows benchmark price movements since the IeC Downturn Monitor's 29 April 2011 launch, with latest ICIS pricing comments below:
PTA China, red, down 17%. "Domestic as well as regional PTA producers continued to cap their production at a reduced rate in view of the persistently squeezed margins"
HDPE USA export, purple, down 16%. "Prices fell, under pressure from lower feedstock ethylene prices as well as falling global prices"
Naphtha Europe, brown, down 13%. "Oversupply is now starting to emerge as demand remains lacklustre"
Brent crude oil, blue, down 10%
Benzene NWE, green, up 8%. "The gains have been driven by export demand from Europe to the US and the lack of pygas as crackers prefer to utilise light feedstocks"