Boom/Gloom Index reaches record high

Index Jun11.pngThe IeC Boom/Gloom Index is now 2 years old. It was developed as a measure of market sentiment, and so far its track record has been good:

• It is now at an all-time high (blue column), which mirrors financial market confidence and their belief that chemicals may be in a supercycle
• The austerity measure (red line) remains stable. This suggests, however, that fundamentals have not improved

The original idea of the Index was that sentiment can be as important as fundamentals, as it “tells us what markets think is going to happen next. Sentiment can often contradict fundamentally-based forecasts.”

As can be seen, the Index dipped last summer, when it appeared that central banks might withdraw their liquidity from financial markets. But this clearly panicked the US Federal Reserve, who then announced their $600bn QE2 programme in August. Equally, Europe launched its €110bn Greek bailout, followed by further bailouts of Ireland and Portugal.

Since then, markets and the Index have not looked back. So it will be interesting to see whether confidence remains at current levels, with the QE2 programme ending this month, and Greece requiring a further bailout.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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