Hedge funds cut bullish commodity bets to a six-month low as mounting concern that slowing economic growth will erode demand drove prices toward the first fourth-quarter retreat since the global recession.
Speculators reduced net-long positions across 18 U.S. futures and options by 11 percent to 675,625 million contracts in the week ended Dec. 24, the lowest since June 19, U.S. Commodity Futures Trading Commission data show. Gold holdings reached a four-month low, while those for copper dropped for the first time in five weeks. Investors are the most bearish on natural gas since May.
The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 2.9 percent since Sept. 30, the first retreat for the period since 2008. Japan and the 17-nation euro area are already back in recessions and the Congressional Budget Office has warned the U.S. risks going the same way unless policy makers agree on averting more than $600 billion of automatic tax increases and spending cuts scheduled to start next month.
“We don’t have sustained, healthy global growth,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. “It’s easier to not to make that bullish bet and either just sit on the sidelines or go on the short side of a ledger.”
The S&P GSCI is up 0.3 percent this year. The MSCI All-Country World Index of equities climbed 13 percent, while the dollar slid 0.5 percent against a basket of six trading partners. Treasuries returned 2.3 percent, a Bank of America Corp. index shows.
The Conference Board’s index of U.S. sentiment fell to 65.1 from 71.5 in November, the lowest in four months, figures from the New York-based private research group showed Dec. 27. The gauge was projected to drop to 70, according to the median in Bloomberg’s survey of economists. Sales of new houses rose less than forecast in November, the Commerce Department said Dec. 27.
The French economy grew less than initially reported in the third quarter, while Japan’s industrial output in November tumbled more than forecast to the lowest since the aftermath of the 2011 earthquake, separate government reports showed Dec. 28. Contracts outstanding across the members of the S&P GSCI are headed for the biggest monthly contraction since June.
Increasing government and central bank stimulus measures will bolster commodity demand, said Evan Smith, who helps manage about $500 million of assets at U.S. Global Investors Inc. in San Antonio.
Japan’s premier Shinzo Abe said Dec. 26 he would push for “bold monetary easing.” Minutes of the Bank of Japan’s November meeting showed that a board member suggested conducting open-ended asset purchases. The Federal Reserve said Dec. 12 it would buy $45 billion of Treasury securities a month from January, adding to $40 billion a month of existing mortgage-debt purchases. The European Central Bank and China have also pledged to do more to bolster growth.
Chinese industrial companies’ profits rose for a third month in November, the National Bureau of Statistics said Dec. 27. The Asian country, the biggest consumer of commodities from copper to soybeans, is poised to snap a seven-quarter slowdown as growth accelerates to 7.8 percent in the three months ending today, according to the median of 35 economist estimates compiled by Bloomberg. They expect China to keep accelerating for at least the next six months.
Manufacturing in China expanded at a faster pace in December, according to the final reading of a Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics released today. The 51.5 figure is the highest since May 2011 and compares with the 50.9 preliminary reading published Dec. 14 and 50.5 in November. A reading above 50 indicates expansion.
“There is evidence that the Chinese economic deceleration has now turned,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets. “Global growth expectations will slowly start improving in the second and third quarter, which will gin up commodity prices.”
Money managers withdrew $188 million from commodity funds in the week ended Dec. 26, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metal funds had a net outflow of $451 million.
Investors cut bullish wagers on copper by 39 percent to 14,988 contracts, the lowest in three weeks, the CFTC data show. Stockpiles monitored by the London Metal Exchange rose for a fourth week to 318,050 metric tons, the highest since February.
Bets on a decline for natural gas climbed to 89,820 contracts, from a net-short position of 64,285 a week earlier. Crude-oil holdings climbed 11 percent to 134,834 contracts, the highest since Oct. 23.
Gold wagers dropped 9.3 percent to 101,922, the lowest since Aug. 14. Prices fell for five weeks in New York trading, the longest slump since January 2010. Bullion is still headed for a 12th straight annual gain, a streak that will end next year, Goldman Sachs Group Inc. said in a Dec. 5 report.
A measure of net-longs for 11 U.S. farm goods tumbled 11 percent to 402,260 contracts, the lowest since June 12, CFTC data show. The S&P GSCI Agriculture Index of eight farm products slumped 1.1 percent last week, the fourth consecutive loss.
Funds are holding a net-short position in wheat of 11,899 contracts, up from 6,433 a week earlier and the most bearish outlook since May. As of Dec. 20, U.S. exporters shipped 13.2 million tons for delivery in the 12 months that started June 1, 13 percent less than a year earlier, U.S. Department of Agriculture data show.
“Commodities are getting caught in a risk-asset slide,” said Jack Ablin, who helps oversee about $66 billion as chief investment officer of BMO Private Bank in Chicago. “Traders want to coast through the end of the year flat instead of watching prices bounce around like a Ping-Pong ball.”