Hedge funds cut bullish wagers on commodities by the most since June as prices retreated to a three-month low on mounting concern that Europe’s debt crisis will worsen and U.S. growth slow.
Money managers reduced combined net-long positions across 18 U.S. futures and options in the week ended Oct. 30 by 11 percent to 1.05 million contracts, the lowest since July 10, Commodity Futures Trading Commission data show. Copper holdings fell to an eight-week low, and gold wagers are now the smallest since September. Gasoline bets declined for a fourth week, and those in oil reached the lowest level in four months as Hurricane Sandy forced U.S. East Coast refineries to shut.
The Standard & Poor’s GSCI Spot Index of 24 raw materials fell a third week, the longest contraction since June. Greece cut its economic outlook for 2013 on Oct. 31, and Spain delayed asking for a bailout. U.S. lawmakers are at an impasse over tax rises and spending cuts, and the presidential election takes place tomorrow. Sales trailed analyst estimates at 59 percent of U.S. companies that released third-quarter results through Nov. 2, data compiled by Bloomberg show.
“It’s hard to see upward price pressures in commodities when we’re still seeing such slow growth,” said Rob Haworth, a senior investment strategist at U.S. Bank Wealth Management in Seattle, which oversees about $111 billion in assets. “Supplies are sufficient for current demand.”
The S&P GSCI retreated 2 percent last week, with 15 of 24 components declining, led by gasoline and heating oil. The MSCI All-Country World Index of equities advanced 0.6 percent, and the dollar climbed 0.7 percent against a basket of six major currencies, strengthening for a second week. Treasuries returned 0.1 percent, a Bank of America Corp. index shows. The S&P gauge rose 0.6 percent to settle at 629.85 today. It fell to 622.45 earlier, the lowest since July 16.
The global economy will expand 3.3 percent this year, the slowest pace since the recession, the International Monetary Fund said Oct. 9. The Washington-based group cited “alarmingly high” risks of a steeper slowdown.
The 17-nation euro area’s jobless rate climbed to a record 11.6 percent in September, the European Union’s statistics office said Oct. 31. The region’s debt crisis has pushed at least five nations into recessions and economic confidence dropped to the lowest in more than three years in October.
U.S. payrolls increased by 171,000 workers in October, exceeding the most optimistic forecast in a Bloomberg survey of economists. The data followed reports showing stronger manufacturing, construction spending and consumer confidence.
An official Chinese purchasing managers’ index released Nov. 1 indicated the first expansion in manufacturing in three months. Reports also showed Taiwan resumed growth last quarter, South Korean industrial production climbed for the first time in four months in September and Singapore’s jobless rate fell to a six-quarter low in the most recent period.
“We’re seeing signs of bottoming in the global economy, and that should be supportive of commodity prices,” said Newport Beach, California-based Mihir Worah, who manages Pacific Investment Management Co.’s Commodity Real Return Strategy Fund, which had about $22 billion in assets as of Sept. 30. “People are differentiating more among commodities, but overall we’re still seeing pretty good inflows.”
Money managers added a net $16 million to commodity funds in the week ended Oct. 31, with $154 million going to gold and precious metals, according to Cameron Brandt, the director of research at Cambridge, Massachusetts-based EPFR Global, which tracks money flows.
Stanley Crouch, who helps oversee $2 billion as chief investment officer at New York-based Aegis Capital Corp., said that investors are growing more concerned as the U.S. closes in on the so-called fiscal cliff. That refers to more than $600 billion in tax increases and spending cuts that will take effect in 2013 unless Congress can reach a budget compromise.
The issue has been among the topics in the campaigns of President Barack Obama and Republican challenger Mitt Romney.
Net-long positions in copper plunged 61 percent to 6,964 contracts, CFTC data showed. Inventories of the metal tracked by the Shanghai Futures Exchange reached a six-month high, a report showed Nov. 2.
Bets on a gold rally fell 7.5 percent to 149,853 contracts, the third straight drop, the CFTC data showed. Futures tumbled the most in four months on Nov. 2 in New York, settling below $1,700 an ounce for the first time in eight weeks. They gained 0.3 percent today.
Cotton net-longs tumbled 55 percent to 9,751 contracts. Inventories in China may reach 9 million metric tons this season, enough to cover the country’s supply deficit for the next six years, Joe Nicosia, the chief executive officer of Allenberg Cotton Co., said on Nov. 2 in Hong Kong. Futures fell 2.9 percent in New York last week.
In crude oil, net-long holdings fell 11 percent to 122,863 contracts, the lowest since June 19. Prices dropped to the lowest in almost four months last week amid speculation that the refinery shutdowns caused by Hurricane Sandy will add to ample supplies. Gasoline wagers fell 4.4 percent to 72,134 contracts.
Damage from Sandy last week may subtract 0.1 to 0.2 percentage point from U.S. gross domestic product in the fourth quarter as spending drops on services such as restaurant meals, according to Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina.
A measure of 11 U.S. farm goods showed speculators trimmed bullish bets in agricultural commodities by 12 percent to 603,173 contracts.
Investors reduced their net-long position in corn by 16 percent to 236,382 contracts, the lowest since mid-July. Bullish bets on sugar dropped 28 percent to 32,981 contracts.
“We’re still in a perilous state here, even with some signs of stabilization lately,” Aegis Capital’s Crouch said. “Chinese metrics have been better, but Europe is still in a big slowdown. There’s uncertainty over what will happen after the U.S. election, and how close to the brink we’ll get.”