Commodities beat equities, bonds and the dollar for a second consecutive month, the longest streak in more than a year, on mounting speculation policy makers will seek to rescue their economies.
The Standard & Poor’s GSCI Total Return Index of 24 commodities rose 6.4 percent in August, led by silver, cocoa and heating oil. The MSCI All-Country World Index of equities gained 1.9 percent for a third straight advance, as the U.S. Dollar Index (DXY), a measure against six currencies, dropped 1.7 percent. Bonds of all types returned 0.2 percent on average, led by Europe’s most indebted nations, according to Bank of America Merrill Lynch’s Global Broad Market Index.
Gains in riskier assets show investors expect policy makers will succeed in bolstering growth. The Federal Reserve and European Central Bank are already holding borrowing costs at a record low, and more than two-dozen nations cut market interest rates this year. China has slowed for six quarters, the 17- nation euro area is contracting, and consumer confidence in the U.S. fell the most in 10 months in August.
“The market has clearly already taken a very sanguine view,” said Bill O’Neill, the London-based chief investment officer for Europe, Middle East and Africa at Merrill Lynch Wealth Management, which oversees more than $1.8 trillion of assets. “The dollar has been weaker, and that’s one of the reasons why commodities are propelled higher. Part of it has been the easing expectations, and the conviction that the Fed would do something aggressive in early September.”
Raw materials entered a bull market last month after rising more than 20 percent since mid-June, erasing this year’s losses. They last beat every other asset for two months in March and April 2011. Commodities rose more than 80 percent from December 2008 to June 2011 as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing.
Silver futures added 13 percent last month, the most since January, as holdings through exchange-traded products advanced for a fourth month, data compiled by Bloomberg show. Investors buy silver both as a hedge against inflation and as a bet on a stronger economy because 53 percent is used in industrial applications from televisions to batteries. The spot price rose 1.2 percent to $32.115 an ounce at 4:37 p.m. New York time. Earlier, the metal reached $32.3025, the highest since April 13.
Heating oil rose 12 percent. July was the hottest month in the lower 48 states in records going back a century. The worst U.S. Midwest drought since 1936 is hurting crops in the biggest agricultural exporter, driving corn and soybean prices to records. Cotton jumped 8.3 percent, the most since February 2011, and cattle futures advanced 1.3 percent. All 105 counties in Kansas, the biggest grower of winter wheat, have been declared federal disaster areas.
Crude traded in New York rose 9.6 percent, the most since October, on increasing concern about supply after the European Union began sanctions on Iran’s oil exports. Production in OPEC’s second-largest member fell 11 percent in August, data compiled by Bloomberg show. Iran, which says its nuclear program is for civilian purposes and not weapon development, threatened to retaliate by blocking the Strait of Hormuz, the transit point for about 20 percent of the world’s oil. Oil futures for October delivery gained 0.6 percent $97.05 a barrel today on the New York Mercantile Exchange.
Oil will advance 19 percent to $115 in three months, soybeans 14 percent to $20 a bushel and corn 13 percent to $9 a bushel, Goldman Sachs Group Inc. said in a report Aug. 13. The bank predicted a month earlier that the S&P GSCI Enhanced Commodity Index would gain 27 percent in a year, with the best returns in energy and industrial and precious metals.
Gasoline futures added 6.6 percent, reaching a four-month high Aug. 27. The cost of a gallon of regular unleaded gas at U.S. pumps was $3.827 on Aug. 31, from $3.521 a month earlier, according to the American Automobile Association.
Hedge funds are holding close to their biggest bet on rising raw-material prices since May 2011, according to data from the Commodity Futures Trading Commission. Open interest, or outstanding futures contracts, across the 24 members of the S&P GSCI rose 1.5 percent last month, the most since March, data compiled by Bloomberg show.
While declining supplies of crops and crude helped lift commodities, prices also rose on optimism demand will strengthen as policy makers bolster growth. ECB President Mario Draghi said Aug. 2 the central bank may buy bonds of distressed euro-area nations should they ask for aid from the region’s bailout fund. Fed Chairman Ben S. Bernanke told central bankers and economists meeting in Jackson Hole, Wyoming, on Aug. 31 that he would not rule out further bond purchases to boost growth.
Almost $3.6 trillion has been added to the value of global equities since the beginning of June, as 71 percent of the members of the S&P 500 Index reported quarterly earnings that beat analyst expectations.
Companies that are most-dependent on economic growth led the gains in the MSCI index. Consumer discretionary, technology, energy and financial shares added at least 2.5 percent. Cisco Systems Inc. (CSCO), the world’s biggest maker of computer-networking equipment, soared 20 percent as profit and sales topped estimates. Bankia SA and Mediobanca SpA surged at least 33 percent to pace advances in European lenders.
“You’ve had a risk-on trade,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $170 billion. “There were expectations the ECB would soon be able to buy bonds and that the Fed would announce another round of quantitative easing. On top of that, people recognize that even though earnings weren’t as robust as they hoped, we’ve had positive surprises.”
Strategists say the best is over for the S&P 500, which added 2 percent last month, and are forecasting a 0.8 percent drop to 1,396 by the end of the year, according to the average of 14 estimates compiled by Bloomberg. The Stoxx Europe 600 Index climbed 1.9 percent last month, and the MSCI Asia-Pacific Index fell 0.8 percent.
Diminishing demand for the safest assets caused the dollar to depreciate in August amid mounting optimism the ECB will be able to contain Europe’s debt crisis. Intercontinental Exchange Inc.’s Dollar Index, tracking the greenback against six major U.S. trading partners, erased the previous month’s 1.2 percent gain. The gauge will average 83 in the fourth quarter, 2.2 percent higher than now, according to the median of 11 analyst estimates compiled by Bloomberg.
Bank of America Merrill Lynch’s Global Broad Market Index extended a 1.4 percent gain in July. The gauge, tracking some 19,600 securities with a market value of about $44 trillion, rose 4.4 percent this year. Average yields fell to 1.7 percent, from 2.24 percent at the end of 2011.
The index rose as investors sought the riskiest securities, with those of Europe’s biggest debtors leading the gains after Draghi said July 26 he would do whatever it takes to preserve the euro. Greek bonds were the best performers among the 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, rising 16 percent. Portugal was second, with an 11 percent gain. Italy’s returned 4.9 percent and Spain’s 3.9 percent.
Treasuries lost 0.1 percent, their biggest decline since June, Bank of America index data show. Yields on the 10-year securities climbed 16 basis points, the second month the interest rate increased. Yields will average 1.71 percent in the third quarter, from 1.62 percent now, according to the Bloomberg weighted average compiled from 80 analyst estimates.
Investment-grade corporate debt rose 0.6 percent in August, for a fifth consecutive monthly gain, while an index of high- yield bonds advanced 1.6 percent. Speculative-grade debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.
The MSCI Emerging Market Index (MXEF) of stocks fell 0.5 percent. The Shanghai Composite Index lost 2.7 percent, reaching the lowest since February 2009 on Aug. 30. China’s slowing economy prompted the People’s Bank of China to cut interest rates in June and July for the first time since 2008. It has lowered banks’ reserve requirements three times starting in November.
“The market is in a waiting pattern right now,” said Steffen Reichold, an emerging-market economist at Stone Harbor Investment Partners in New York. “No one is really trying to put on big positions.”
The benchmark Vietnamese stock index fell 4.5 percent after Nguyen Duc Kien, a founder of Asia Commercial Bank, the nation’s fourth-biggest lender by market value, was detained for what the central bank called conducting “business illegally.” That raised concern among investors about the stability of the nation’s financial system.
Dollar-denominated emerging-market government bonds tracked by JPMorgan Chase & Co. returned 1.2 percent for the month as investors sought alternatives to record-low yields in the U.S. and Germany. Emerging-market local currency bonds dropped 0.1 percent in dollar terms, according to JPMorgan’s GBI-EM Global Diversified Index.
Belize’s $544 million bonds due in 2029 lost 26 percent in August, the biggest loser among emerging-market government debt, as the Central American country defaulted by missing a coupon payment Aug. 20.
Colombia’s peso declined 1.7 percent, the most among emerging market currencies, as the government bought dollars to weaken the foreign-exchange rate in a bid to spur exports. Central banks from China to Uruguay are also taking measures to weaken their currencies to make their exports cheaper and stimulate their economies.
“The real world is just chopping along and getting by, and that’s about all you can hope for,” said Doug King, the London- based co-founder of the Merchant Commodity Fund, which oversees about $450 million of assets. “A lot of people have a watching brief until we get more facts on the macro picture. There is a risk the market gets disappointed in macro news and there’s a rush to the exit.”
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