Hedge funds increased bullish bets on commodities for the first time in three weeks as prices dropped to a two-month low on signs of slowing Chinese growth and rising supplies of everything from crude oil to coffee.
Money managers raised net-long positions across 18 U.S. futures and options by 0.2 percent to 1.24 million contracts in the week ended Oct. 2, Commodity Futures Trading Commission data show. They fell 6.6 percent in the previous two weeks. Silver wagers climbed to the highest in almost two years while bullish oil bets fell to a seven-week low. Gold holdings rose for a seventh week before prices reached an 11-month high.
Commodities retreated 4.4 percent since the Federal Reserve announced a third round of debt buying Sept. 13. While raw-material prices surged in the previous two rounds from December 2008 through June 2011, weaker growth and rising supplies are driving futures lower this time. Non-manufacturing industries in China expanded at the slowest pace in at least 18 months in September, European Union unemployment held at a record in August and U.S. crude output is the highest since 1996.
“It’s harder to put money on the table right now in commodities,” said David Goerz, the chief investment officer at Highmark Capital Management Inc., which oversees about $17 billion of assets. “Commodities are increasingly focused on what’s happening in the fundamental economy, and China is a very big part of that. Overall, the real issue is whether the economy is able to strengthen.”
The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 0.9 percent last week and on Oct. 3 reached the lowest closing level in two months. The MSCI All-Country World Index of equities climbed 1.6 percent and the dollar fell 0.7 percent against a basket of six major trading partners. Treasuries lost 0.5 percent, a Bank of America Corp. index shows. The GSCI declined 0.5 percent to settle at 656.64 today.
China’s non-manufacturing purchasing managers’ index fell to 53.7 in September, the lowest since at least March 2011, the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing said Oct. 3. Readings below 50 indicate contraction. On the same day, the Asian Development Bank said the region excluding Japan will grow 6.1 percent this year, the slowest pace since 2009.
U.S. oil output rose to 6.52 million barrels a day in the week ended Sept. 28, the most since December 1996, the Energy Department reported Oct. 3. Coffee inventories monitored by the ICE Futures U.S. exchange have climbed for 47 consecutive trading sessions, the longest stretch since August 2003. Supplies of cotton, sugar and nickel will exceed demand this year, Morgan Stanley said in a report Oct. 1. Barclays Plc expects surpluses in aluminum, lead and zinc.
An improving U.S. labor market may signal faster growth in the world’s largest economy as the Fed increases its record stimulus and keeps interest rates at a record low. The jobless rate, stuck above 8 percent for 43 months, unexpectedly fell to 7.8 percent in September, Labor Department figures showed Oct. 5. The U.S. is the world’s biggest consumer of corn and crude.
The Fed said it would start a third round of so-called quantitative easing with open-ended purchases of $40 billion of mortgage debt a month and pledged to keep the benchmark interest rate near zero percent “at least through mid-2015.”
“We’re long-term bullish,” said Nelson Louie, the global head of commodities at New York-based Credit Suisse Asset Management, who helps manage $10.9 billion. “What the market is really focused on over the next quarter or so is seeing a series of numbers that show general improvement to ensure that the quantitative easing that the Fed has committed to will actually work to strengthen the economy.”
Money managers added $1.08 billion to commodity funds in the week ended Oct. 3, with $881 million going to gold and precious metals, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows.
While the surprise decline in the U.S. unemployment rate may give President Barack Obama’s re-election campaign a boost a month before the election, whoever wins the presidency will contend with a budget on a trajectory characterized as unsustainable by Fed Chairman Ben S. Bernanke.
The U.S. may tumble into a recession next year if Congress fails to avert the so-called fiscal cliff of automatic spending cuts and tax rises, International Monetary Fund Managing Director Christine Lagarde said in an interview with CBS Oct. 1.
Net-long holdings of crude dropped 6.5 percent to 166,172 futures and options, the lowest since Aug. 14, the CFTC data show. Prices declined 2.5 percent last week, a third drop and the longest run of declines since June 1. Total U.S. fuel demand fell 0.3 percent to 18.3 million barrels a day in the four weeks ended Sept. 28, the lowest since April, the Energy Department reported Oct. 3.
Money managers boosted their gold positions by 3 percent to 195,647 contracts, the highest since Feb. 28. Futures in New York climbed 0.4 percent last week and touched $1,798.10 an ounce on Oct. 5, the highest since Nov. 9. Holdings in exchange-traded products backed by the metal jumped 7.3 percent since the end of July, reaching a record 2,569.59 metric tons on Oct. 5, data compiled by Bloomberg show.
A measure of 11 U.S. farm goods showed speculators lowered bullish bets in agricultural commodities by 7.1 percent to 674,229 contracts. The wagers have dropped for four straight weeks, the longest slump since April.
Soybean positions fell 8.5 percent to 178,742 contracts, the lowest since March 13. Prices slid 3.1 percent last week in Chicago on speculation that rain in the past two months revived yields threatened by the country’s worst drought since 1956.
“With squishy growth in emerging countries, we may not see the demand for commodities surge,” said Michael Shaoul, the chairman of Marketfield Asset Management in New York, which oversees more than $3 billion of assets. “We are not predicting a collapse, but it seems like it’s not a very exciting place to have your money parked.”