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Long positions raised before talk of moves by Europe, US, China to revive global growth fuelled surge in prices for a sixth week
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Long positions raised before talk of moves by Europe, US, China to revive global growth fuelled surge in prices for a sixth week
Bloomberg
12 September 2012
Hedge funds raised bullish commodity bets to the highest in 16 months before speculation that policy makers in the US, China and Europe will revive global growth pushed prices higher for a sixth week. Money managers increased their net-long positions across 18 US futures and options by 2.3 per cent to 1.33 million contracts in the week ended Sept 4, the highest since May 3, 2011, US Commodity Futures Trading Commission data show. Wagers on a silver rally climbed for a sixth week and to the highest since Feb 28, while those for cocoa jumped 57 per cent to the most since May 2010.
US unemployment stayed above 8 per cent for a 43rd month in August, and the stagnating labour market means the Federal Reserve will move closer to adding fresh stimulus measures, according to Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. European Central Bank president Mario Draghi announced a bond-buying programme on Sept 6 and China’s government approved plans for 1,254 miles of roads, subway projects in 18 cities and other infrastructure projects.
“The European fears have calmed to an extent, and China may see a bottoming over the next two quarters,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about US$325 billion. “Commodities have probably turned a corner, and optimism about easing in the US is putting a bid under prices.”
The Standard & Poor’s GSCI Spot Index of 24 commodities rose 0.2 per cent last week, led by silver, which surged 7.1 per cent. The MSCI All-Country World Index of equities advanced 2.5 per cent, and the dollar declined 1.2 per cent against a measure of six major trading partners. Treasuries lost 0.5 per cent, a Bank of America Corp index showed.
ECB move a game changer
The US economy added 96,000 workers last month, trailing forecasts for a gain of 130,000, Labor Department data show. The report came a week after Fed chairman Ben S Bernanke said the job market was a “grave concern.” The central bank probably will give “strong hints” or provide “positive action” at this week’s Federal Open Market Committee meeting, Pimco’s Mr Gross said on Sept 7.
ECB policy makers agreed to an unlimited bond-purchase programme to reduce interest rates for struggling nations and fight speculation about a breakup of the 17-nation euro. Andrew Garthwaite, a strategist at Credit Suisse Group AG in London, called the programme a “game-changer” in a note on Sept. 7.
Actions from central bankers and governments won’t be enough to revive the slowing global economy, according to Jeffrey Sica, the Morristown, New Jersey-based president of Sica Wealth Management who helps oversee more than US$1 billion.
China’s manufacturing contracted at the fastest pace since March 2009, an index from HSBC and Markit Economics showed on Sept 3, adding to signs of a deepening slowdown in the world’s second-largest economy. A separate manufacturing purchasing managers index released Sept 1 by the government showed the first contraction since November. Industrial output in China grew in August at the slowest pace in three years. President Hu Jintao said the economy faces “notable downward pressure,” signalling that more stimulus may follow the approvals for road projects and subways.
The euro area’s economy contracted in the second quarter as consumers cut spending and corporate investment slumped, the European Union’s statistics office said on Sept 6. It will keep contracting until the end of the first quarter next year, according to the median of as many as 22 economist estimates compiled by Bloomberg.
The US is the world’s biggest oil and corn consumer, and China is the top user of metals, soybeans and cotton. Europe consumes 18 per cent of the world’s copper and accounts for 22 per cent of oil demand, data from Barclays and BP show. Investors added US$1.13 billion to raw-material funds in the week ended Sept 5, according to EPFR Global. Precious metals accounted for US$685 million of the inflows, the Cambridge, Massachusetts-based company said. The S&P GSCI surged 92 per cent from the end of December 2008 through June 2011 as the Fed kept interest rates near zero and bought US$2.3 trillion in government and housing debt. The index has jumped 22 per cent since this year’s low on June 22, driving it into a bull market.
Raw materials will gain an additional 10 per cent because supplies remain constrained, Jeffrey Currie, Goldman Sachs Group Inc’s head of commodities research, said on Sept 6. Production of natural gas and copper will fall short of demand this year, Morgan Stanley said in a report on Sept 4. Inventories of corn and wheat will drop as the worst US drought since 1956 hurts crops, the bank said. Funds raised their bets on higher crude-oil prices for a third straight week to 193,624 contracts, the highest since May 1, CFTC data show. Crude was little changed at US$96.42 a barrel last week, and settled at US$96.54 on the New York Mercantile Exchange on Monday. Gold holdings climbed 9.9 per cent to 144,775, a six-month high. Futures jumped 3.1 per cent to US$1,740.50 an ounce last week in New York.
“Whatever China is doing should help the economy,” said Peter Jankovskis, who helps oversee US$3 billion of assets as co-chief investment officer at Oakbrook Investments LLC. “If all this takes root and growth begins to build, it will be very, very bullish.”