The 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.