Investors cut bullish commodity bets to the lowest in almost six months as U.S. budget talks stalled, increasing concern that lawmakers’ failure to reach an agreement with push the world’s biggest economy back into a recession.
Hedge funds and money managers reduced net-long positions across 18 U.S. futures and options by 5.6 percent to 758,256 contracts in the week ended Dec. 18, the lowest since June 26, U.S. Commodity Futures Trading Commission data show. Gold holdings dropped to the lowest since August, while those for silver tumbled 14 percent, the most since July 24. Traders turned bearish on wheat for the first time in six months.
House Republican leaders scrapped a plan to allow higher taxes on Dec. 21. Lawmakers won’t vote until after tomorrow’s Christmas holiday on ending the showdown over $600 billion of automatic tax increases and spending cuts scheduled to start in January. U.S. consumer confidence fell to a five-month in December as Americans grow more concerned about the possibility of higher taxes, figures showed the same day.
“What you have is a re-pricing of risk on concerns of no resolution to the fiscal cliff,” said Jeffrey Sherman, who helps manage more than $50 billion of assets for DoubleLine Capital in Los Angeles. “By going over the cliff, for the consumer, you have less money in the system and therefore less economic growth.”
The Standard & Poor’s GSCI Index of 24 commodities dropped 1.8 percent this month. The MSCI All-Country World Index of equities added 2 percent, and the dollar slid 0.6 percent against a basket of six trading partners. Treasuries lost 0.6 percent, a Bank of America Corp. index shows.
The Thomson Reuters/University of Michigan U.S. consumer sentiment index fell to 72.9 in December, the weakest since July. Economists in a Bloomberg survey projected a final reading of 75. Congress won’t reach a deal this year on a budget plan, Representative Kevin Brady, a Texas Republican, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt.” The Congressional Budget Office says failing to avert the fiscal cliff may cause a recession in 2013.
The index of U.S. leading indicators fell in November, pointing to a slowdown in the economy early next year, data from the Conference Board showed Dec. 20. The Federal Reserve lowered its outlook for growth next year to 2.3 percent to 3 percent on Dec. 12, and Chairman Ben S. Bernanke warned that the central bank “doesn’t have the tools” to counter the risks to the economy should Congress not reach a budget deal.
The U.S. economy will probably be resilient and support rising demand for commodities, said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $325 billion of assets.
Third-quarter growth beat economists’ forecasts as gross domestic product accelerated at a 3.1 percent annual rate, the Commerce Department said Dec. 20. The World Bank raised its forecast for 2012 growth in East Asia a day earlier to 7.5 percent from an October projection of 7.2 percent after China’s economy recovered.
China is the biggest consumer of everything from cotton to copper, and the U.S. uses the most crude oil and corn.
Money managers withdrew $445.9 million from commodity funds in the week ended Dec. 19, the most since July, according to Simon Ringrose, a managing director at Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metal funds had a net outflow of $327 million.
Investors increased their bets on declining natural-gas prices, holding a net-short position of 64,285 contracts, the CFTC said. That compares with 49,582 a week earlier and is the most bearish since June 19. Wagers on West Texas Intermediate oil advanced 19 percent, the most since August.
Bullish silver wagers dropped to a five-week low of 30,119 contracts, and those on gasoline reached the smallest since July. Bets on a gold rally fell 13 percent to 112,421 contracts, the lowest since Aug. 21. Bullion declined 2.2 percent last week, the fourth straight loss, as inflation remains in check even as the Fed expanded its third round of monetary easing this month. The cost of living fell more than forecast in November as energy prices dropped, the Labor Department reported Dec. 14.
A measure of net-longs for 11 U.S. farm goods fell 6.3 percent to 453,410 contracts, the lowest in four weeks, CFTC data show. The S&P GSCI Agriculture Index of eight farm products slumped 2.6 percent last week, the third consecutive loss and the biggest decline since Sept. 21.
Bullish bets on corn fell 22 percent to 175,631, the lowest since July 3. Prices have fallen for three straight weeks, coming “under pressure from weak-demand indicators,” analysts at Barclays Plc wrote in a report Dec. 21.
Investors turned bearish on wheat for the first time since June 19 as wet weather improved the condition of the U.S. winter crop. The net-short position totaled 6,433 contracts, compared with net-long bets of 11,219 a week earlier.
“If there’s concern that we’re going over the fiscal cliff and the U.S. economy is going to have a recession, clearly that weighs on commodities,” said Adrian Day, who manages about $170 million of assets as president of Adrian Day Asset Management in Annapolis, Maryland. “For the next few weeks, we could see continued weakness.”