Oil Makes Commodities Best Investment First Time Since July on Iran Threat
Commodities, led by oil, beat stocks, bonds and the dollar for the first time since July as the European Union prepared to embargo Iranian crude, the U.S. economy improved and China took steps to shore up growth.
The Standard & Poor’s GSCI Total Return Index (SPGCESTR) of 24 raw materials rose 6.5 percent in February, extending the previous month’s 2.2 percent gain, as Brent crude advanced 11 percent. The MSCI All-Country World Index of shares increased 4.8 percent, extending stocks’ best start to a year since 1991. Bonds of all types were little changed on average, according to Bank of America Merrill Lynch’s Global Broad Market Index. The Dollar Index slid 0.6 percent.
“There has been a confluence of perfect factors for commodities,” said Harry Tchilinguirian, head of commodity- markets strategy at BNP Paribas SA in London. There “are the oil-supply constraints with geopolitical tensions escalating in Iran. There was also positive economic news out of China and the U.S,” he said.
Brent crude futures had their biggest monthly gain in a year in February as the EU said Jan. 23 it would impose an embargo from July on Iran’s oil to pressure the nation over its nuclear program. The Persian Gulf country, OPEC’s second-biggest producer, stopped selling oil to Britain and France on Feb. 20.
The International Atomic Energy Agency said Feb. 24 that Iran dismissed the concerns of its inspectors during a two-day visit to Tehran and had tripled its quarterly rate of producing 20 percent-enriched uranium.
The number of Americans filing first-time claims for jobless benefits reached a four-year low in the week ending Feb. 18, Labor Department data showed, while an index of U.S. leading indicators advanced. In China, the central bank announced a second reduction in bank reserve requirements in three months to bolster lending. Greece got a 130 billion-euro ($173 billion) bailout from the EU and the International Monetary Fund on Feb. 21 in return for spending cuts and economic reforms.
The S&P GSCI index is off to its best start since 2008, rising 9.4 percent as of today, partly as declines in the U.S. currency boosted the allure of investments priced in dollars and company earnings beat analysts’ estimates. February’s gains were the biggest since October, as sugar and soybeans rose.
“A shock-free earnings season, improving macro-economic data out of the U.S., progress on the bailout package for Greece and a weaker dollar have helped support elevated levels of risk appetite and one clear beneficiary of that has been the commodities asset class,” said Ashish Misra, the London-based head of investment research at Lloyds TSB Banking Group Plc’s private-banking unit, which manages about $19 billion.
Brent, the benchmark grade for more than half the world’s crude, rose 11 percent in February and traded at $125.55 a barrel on Feb. 24, the highest level since May. It was at $125.02 at 5:45 p.m. London time today. West Texas Intermediate, the main U.S. crude, advanced 8.7 percent, rising to $109.95 on Feb. 25. It was at $108.08 a barrel today.
Rising prices are “a test for the U.S.,” a team led by Mansoor Mohi-uddin, the Singapore-based chief currency strategist at UBS AG, wrote in a Feb. 27 report. “Oil is moving fast up the policy-maker agenda. Event risk aside, policy makers might want to ask whether their actions are finally starting to transmit into pricing pressures for commodities.”
Soybeans jumped 10 percent to a five-month high on the Chicago Board of Trade in February, the most since 2010, as U.S. export sales rose and the government forecast that inventories will slump 25 percent before the 2013 harvest. Sugar advanced 5.8 percent on ICE Futures U.S., the most since July, after drought cut supplies from Mexico. Lumber traded in Chicago advanced 11 percent on improved demand from China.
Nickel, coffee and cotton were the biggest losers on the GSCI, declining 7.7 percent, 5.5 percent and 3 percent, respectively. Gold dropped 2.5 percent.
Commodity investments may increase by as much as $40 billion, or 10 percent, in 2012 after the weakest inflows since 2002 last year as investors favor oil, gold and copper, Kevin Norrish, an analyst at Barclays Capital in London, said Feb. 23. Commodity assets under management were $399 billion at the end of 2011, the bank said in a Jan. 26 report.
Open interest, the number of futures contracts that haven’t been closed or delivered, for 24 commodities from oil to copper rose 3.3 percent through Feb. 27 to the highest level since April, data compiled by Bloomberg show. Speculators are the most bullish since September, Commodity Futures Trading Commission data showed, with wagers on gains in gold climbing to a five- month high and bets on crude oil rising to the most since May. Improved Earnings
The MSCI All-Country World Index advanced for a second month, returning 5.1 percent in February after 5.8 percent in January. The measure, which includes both developed and emerging market stocks from 45 countries, climbed to 332.44 on Feb. 28, the highest level since Aug. 1. While all 10 groups in the MSCI index increased last month, companies most tied to economic growth had the biggest advances. Technology, financials and consumer discretionary stocks advanced 7.2 percent, 6 percent and 5.9 percent, respectively.
Egyptian Co. for Mobile Services led gains in the MSCI gauge, surging 69 percent, as France Telecom SA agreed to raise its stake in Egypt’s second-biggest mobile-network operator. Sears Holdings Corp. (SHLD) jumped 65 percent, the second-biggest advance, after the retailer announced plans to raise as much as $770 million through real-estate sales and a rights offering.
‘Cash on Sidelines’
The Standard & Poor’s 500 Index (SPX) returned 4.3 percent in February, including dividends, and closed at 1,372.18 on Feb. 28, the highest level since June 2008. Companies in the benchmark gauge for U.S. equities exceeded analysts’ earnings estimates for a 12th straight quarter. The Stoxx Europe 600 Index added 4.2 percent, Japan’s Topix Index rallied 11 percent and Brazil’s Bovespa climbed 4.3 percent.
“The market’s reflecting confidence that the U.S. and emerging economies are going to continue to recover,” William Fries, the Santa Fe, New Mexico-based manager of the $28 billion Thornburg International Value Fund, said in a telephone interview on Feb. 27. “Headwinds and adverse publicity have been in the picture, but by and large, companies are doing well. There’s lots of cash on the sidelines, and valuations are reasonable. That has people encouraged.”
Per-share earnings for S&P 500 corporations increased for a ninth straight quarter during the period that ended Dec. 31, according to data compiled by Bloomberg. Income dropped 3.3 percent for the MSCI All-Country World Index, the data show.
The MSCI Emerging Markets Index (MXEF) climbed 5.9 percent in February and posted its best start to a year in two decades. Dubai’s DFM General Index (DFMGI) jumped 21 percent, the top gain among benchmark equity gauges in the world’s 50 biggest markets, as companies including Emaar Properties PJSC and Dubai Islamic Bank PJSC reported improved earnings. Egypt’s EGX 30 Index (EGX30) rose 15 percent, extending this year’s rally to 48 percent.
Russia’s ruble appreciated 4 percent against the dollar as oil advanced. Indonesia’s rupiah weakened 0.3 percent on concern government plans to reduce fuel subsidies will stoke inflation.
Venezuelan dollar bonds led advances among emerging-market government debt, returning 13 percent, as investors speculated President Hugo Chavez may not run in October elections because of cancer, according to JPMorgan Chase & Co.’s EMBI Global Index. Chavez’s government has presided over the region’s highest inflation rate and deterred foreign investment by nationalizing companies. Shares of Banco Provincial SA (BPV), a Caracas-based lender, rose 42 percent.
U.S. government securities lost 0.5 percent for the month as of Feb. 28, the worst monthly performance since October, according to the U.S. Treasury Master index, as demand for the safest assets waned. This year’s declines follow returns of 9.8 percent in 2011, the most in three years.
The yield on the 10-year Treasury note was at 2.03 percent today, compared with the record low 1.67 percent on Sept. 23, signaling the economic recovery may be poised to weaken even as consumer confidence rises toward pre-recession levels. The U.S. note yield averaged 3.41 percent during the past five years.
Bonds of all types gained 0.33 percent, the Bank of America Global Broad Market Index showed, the least since November. Global sovereign bonds rose 0.1 percent and global corporate securities climbed 1.2 percent, according to the indexes.
InterContinentalExchange Inc.’s Dollar Index (DXY), which tracks the currency versus six U.S. trading partners, fell 0.6 percent on the month. The dollar weakened against 15 of its 16 major counterparts tracked by Bloomberg.
“There are signs that the U.S. economy is improving, the labor market in particular,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut, said Feb. 24 in a telephone interview. “The Fed has committed to providing an exceptional amount of policy stimulus for the foreseeable future. The issues in Europe, while not completely resolved, are seeing progress made toward dealing their sovereign credit crisis.”
The yen depreciated 6.1 percent against the dollar, a sign Bank of Japan Governor Masaaki Shirakawa’s inflation goal is succeeding where record intervention failed. The yen fell against all of its 16 major counterparts this month, dropping 7.7 percent against nine developed-nation currencies, according to Bloomberg Correlation-Weighted Currency Indexes.
The currency plunged to a seven-month low after the BOJ, which has struggled for more than a decade against deflation, said on Feb. 14 it aimed for 1 percent yearly gains in consumer prices and would add 10 trillion yen ($124 billion) to the economy. Traders are paying record premiums for options to buy the dollar against the yen for three, six and 12 months. Bullish bets on Japan’s currency have fallen by almost half.
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