Commodities jumped the most in 39 months on optimism that Europe’s debt crisis may be contained after leaders agreed to ease repayment rules for emergency loans to Spanish banks and relax conditions on help for Italy.
The Standard & Poor’s GSCI Spot Index (MXWD) of 24 raw materials rose 5.6 percent to 599.44, the biggest gain since April 2, 2009. The increase trimmed the quarterly loss to 13 percent, still the worst since the final three months of 2008. Crude oil jumped 9.4 percent, reducing its quarterly drop to 18 percent.
After 12 hours of talks that ended at 4:30 a.m. in Brussels today, leaders of the 17 euro countries dropped the requirement that governments get preferred creditor status on crisis loans to Spain’s blighted banks, European Union President Herman Van Rompuy said. Banks can also be recapitalized directly with funds rather than going through governments, he said.
“We had a spark out of Europe that caused the fire to blow up,” said James Dailey, who manages $215 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “It’s the response to the news out of Europe combined with what had become deeply oversold conditions, specifically in crude oil, which basically fell off a cliff in the last couple of months.”
European leaders discussed ways to reduce the risk premiums on Italian and Spanish bonds, which have driven concern by economists, investors and Europe’s global partners, including the U.S., that the currency union risks coming apart.
The euro rose 1.7 percent to $1.2655 at 4:40 p.m., the biggest gain since Oct. 27. The Standard & Poor’s 500 Index (SPX) climbed 2.5 percent and the Dow Jones Industrial Average increased 2.2 percent.
“Investor sentiment improved on news from the EU summit and many commodity prices rebounded,” Anton Zakharov, a commodity analyst at OAO Promsvyazbank in Moscow, said today in an e-mail.
The commodities gauge plunged 44 percent in the final quarter of 2008, when the bursting of the U.S. real-estate bubble and the collapse of Lehman Brothers Holdings Inc. pitched the world into a recession. Raw materials entered a bear-market last week as Europe’s crisis escalated and concern mounted that the U.S. recovery was faltering.
Gold futures for August delivery climbed 3.5 percent to settle at $1,604.20 on the Comex in New York, the biggest gain since June 1. The metal has advanced 2.6 percent in June, the first monthly gain since January.
Copper for September delivery climbed 5 percent to settle at $3.4965 a pound on the Comex. The increase was the biggest since Nov. 30. Prices added 5.5 percent this week, the biggest such gain since January. For the quarter, prices were down 8.6 percent.
Losses in the quarter have been led by coffee, cotton and oil, with the 13 percent decline in the S&P GSCI exceeding the 6.4 percent drop in the MSCI All-Country world Index of equities. Raw materials have also been hurt by signs of slower growth in China, the world’s largest user of base metals.
“The key issue is the uncertainty as to what’s going to happen in Europe, and that continues to unnerve and unsettle a lot of consumers,” said Jeremy Baker, who manages the $800 million Vontobel Belvista Commodity Fund in Zurich. “There are some very attractive commodities out there in terms of absolute prices, but we need to see some concrete steps from the European Union for the commodities to trend higher.”
EU sanctions on Iran will enter into full force on July 1 after exemptions on some contracts and insurance end, potentially boosting crude prices as well as adding pressure on the Persian Gulf nation to halt its nuclear-enrichment program.
Norwegian oil and gas unions decided after a meeting today that they will maintain their strike at the existing level, Leif Sande, president of Industry Energy, the biggest of the three unions, said from Stavanger, Norway. The labor action is currently halting about 250,000 barrels of oil a day.
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