Hedge funds cut bullish commodity bets by the most in seven weeks on mounting concern that Europe’s debt crisis will restrain global economic growth and demand for raw materials.
Money managers reduced combined net-long positions across 18 U.S. futures and options by 10 percent to 754,558 contracts in the week ended Nov. 15, Commodity Futures Trading Commission data show. That’s the biggest decline since the seven days ended Sept. 27. Sugar wagers fell 30 percent, the most since December 2008, and bets on lower copper prices almost doubled.
More than $2 trillion was erased from the value of global equities last week as the MSCI All-Country World Index fell for five consecutive days, the longest losing streak since August. Rates on French, Belgian, Spanish and Austrian bonds rose to euro-era records above German bunds and the cost of insuring against default on Western European debt reached an all-time high. The European Central Bank bought sovereign debt for five days as policy makers failed to agree on containing the crisis.
“We’re in an environment where the outside market factors can overwhelm any fundamental,” said Ron Lawson, a managing director at Logic Advisors, a commodity consultant in Sonoma, California. “When we get uncertainty, people are naturally inclined to just sell.”
The Standard & Poor’s GSCI Commodity Index slid 2.6 percent last week, the most since mid-September. The MSCI All-Country World Index fell 4 percent for a third consecutive weekly drop. The U.S. Dollar Index, a measure against six trading partners, rose 1.4 percent and Treasuries returned 0.3 percent, a Bank of America Corp. index showed.
Seventeen of the 24 raw materials tracked by the GSCI gauge retreated, led by a 7.5 percent decline in natural gas, a 6.3 percent drop in silver and a 4.9 percent reversal in cotton.
Bets on higher sugar prices plunged by 29,717 to 68,025 contracts, the CFTC data show. Raw sugar traded on ICE Futures U.S. declined 4.1 percent, for a fifth consecutive weekly drop.
Funds almost doubled their bearish copper bets to a net- short position of 3,491 contracts. Copper traders and analysts are the most bearish in almost two months, with 11 of 23 surveyed by Bloomberg anticipating lower prices this week. Investors are also short on cocoa, soybean meal, soybean oil, wheat and natural gas, the CFTC data show.
The S&P GSCI index tumbled 16 percent since reaching a 32- month high in April. The gauge fell 1 percent to 641.94 at 3:45 p.m. in New York. European Central Bank President Mario Draghi pressed the euro region’s leaders to implement policy commitments on Nov. 18 and said “downside risks to the economic outlook have increased.”
Goldman Sachs Group Inc. cut its forecast for commodity gains in the next 12 months to 15 percent from 20 percent in a report last week. The S&P GSCI advanced 1.6 percent this year, poised for its weakest performance since a 43 percent decline in 2008, when the most-severe recession since the 1930s crimped demand for raw materials.
Commodity-index investments had a net outflow of $1.33 billion in the week ended Nov. 8, after $9.3 billion was added in the previous four weeks, Citigroup Inc. reported Nov. 15.
Funds increased their net-long position in gold for a fourth consecutive week, the longest winning streak since early March. Holdings in exchange-traded products backed by the metal rose 1.2 percent to a record 2,339.97 metric tons, data compiled by Bloomberg show. Bullion retreated 3.5 percent last week in New York and extended that decline by 2.7 percent to settle at $1,678.60 an ounce today. Nineteen of 29 traders and analysts surveyed by Bloomberg expect gold to climb this week.
Investors put $149 million into commodities funds in the week ended Nov. 16, according to data from Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metals inflows contributed $849 million, and non- gold and non-precious metal commodity had net outflows of $700 million, said Cameron Brandt, the director of research.
“Europe is edging close to having growth stall, and if things end up heading towards the worst-case scenario, then it could bring global growth down with it,” Brandt said.
Europe’s economic expansion failed to accelerate in the third quarter, with gross domestic product increasing 0.2 percent from the previous three months, when it rose at the same pace, the European Union said Nov. 15.
Faster expansion elsewhere may help to bolster demand for commodities, said Brian Hicks, who helps run a natural-resources fund managing about $700 million at U.S. Global Investors in San Antonio. Developing economies will gain 6.1 percent next year, compared with 1.9 percent in advanced economies, the International Monetary Fund said in a September report.
JPMorgan Chase & Co. raised its estimate for fourth-quarter growth in the U.S. economy to 3 percent from 2.5 percent in a report Nov. 15. Morgan Stanley & Co. lifted its outlook to 3.5 percent from 3 percent. Reports from the Labor and Commerce Departments last week showed U.S. claims for jobless benefits dropped to the lowest in seven months and housing starts exceeded forecasts.
Speculators raised bets on higher crude-oil prices by 5.9 percent to 216,075 contracts, the CFTC data show. Wagers on heating oil and gasoline gained 1.1 percent. Crude traded on the New York Mercantile Exchange exceeded $100 a barrel last week, for the first time since July.
A measure of 11 U.S. farm goods showed speculators lowered bullish bets in agricultural commodities by 19 percent to 398,751, the lowest since July 2010. Soybean wagers fell 64 percent to 10,133, the biggest slump since July 2010. Net-long positions in corn dropped 9.8 percent to 197,627, the largest decline since the week ended Oct. 4.
“As uncertainty in Europe grows, people are taking down risk and selling commodities,” said Nic Johnson, who helps manage about $30 billion in commodity assets at Pacific Investment Management Co. in Newport Beach, California. “People see this slowdown in demand coming.”
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