Hedge funds increased bullish commodity bets by the most in six months as accelerating growth from China to the U.S. boosted prices for a seventh week.
Speculators raised net-long positions across 18 U.S. futures and options by 11 percent to 758,048 contracts in the week ended Jan. 22, the biggest gain since July 3, U.S. Commodity Futures Trading Commission data show. Bullish crude-oil bets reached a four-month high, while those for soybeans climbed by the most since March. Investors are the most bullish on cotton since February 2011.
More than $2.2 trillion was added to the value of global equities this month as the Standard & Poor’s 500 Index posted the first eight-session rally since 2004. Manufacturing in China is expanding at the fastest rate in two years, and an index of U.S. leading indicators rose the most in three months in December, private reports showed Jan. 24. Germany’s economy, Europe’s largest, has started to show signs of recovery, the Bundesbank said Jan. 21.
“There has been definitive signs of reacceleration of global growth,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which has about $130 billion of assets. “Investor sentiment will continue to shift to a more bullish stance towards commodities.”
The S&P GSCI Spot Index of 24 commodities rose 2.9 percent since the start of January, heading for the biggest monthly gain since August. The MSCI All-Country World Index of equities climbed 4.3 percent, while the dollar was little changed against a basket of six trading partners. Treasuries lost 0.9 percent, a Bank of America Corp. index shows.
The preliminary reading of a Chinese Purchasing Managers’ Index was 51.9 in January, figures from HSBC Holdings Plc and Markit Economics showed. That compares with the 51.5 final reading for December and the 51.7 median estimate of 17 analysts surveyed by Bloomberg. A level above 50 indicates expansion. The country’s economy will accelerate through September, the median of estimates from 33 economists compiled by Bloomberg show.
The Conference Board’s index of U.S. sentiment rose 0.5 percent after no change in November. U.S. jobless claims fell by 5,000 to 330,000 in the week ended Jan. 19, the fewest since the same week in 2008, the Labor Department said Jan. 24. Euro-area manufacturing and services shrank at a slower pace this month than economists projected, Markit Economics said the same day.
Global growth may not recover enough to support commodity prices as the U.S and Europe struggle with budget deficits, said Jeffrey Sherman, who helps manage more than $52 billion of assets for DoubleLine Capital in Los Angeles,
The International Monetary Fund lowered its global growth forecasts on Jan. 23 and said the 17-nation euro area probably will contract for a second year. The world economy will expand 3.5 percent this year, less than the 3.6 percent forecast in October, the Washington-based IMF said.
European Central Bank President Mario Draghi said Jan. 25 that the region’s policy makers are still waiting for signs the economy has turned. Christine Lagarde, managing director of the IMF, said U.S. policy makers should create a long-term plan for handling the deficit. The U.S. House voted last week to suspend the nation’s $16.4 trillion borrowing limit until May 19.
“It’s a year of somewhat benign global growth as we deal with these fiscal imbalances globally,” Sherman said. “It’s nothing to get real excited about. People have to have some form of optimism on growth to participate in commodities. Until then, you have to stay select.”
Money managers withdrew $512 million from commodity funds in the week ended Jan. 23, 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 $457 million.
Bets on higher crude-oil prices rose 15 percent to 205,903 contracts, the highest since Sept. 18, the data show. Futures in New York capped a seventh weekly gain, the longest rally in almost four years. Crude-oil futures for delivery in March rose 0.6 percent to settle at $96.44 a barrel today on the New York Mercantile Exchange.
China, the largest oil-consuming country after the U.S., accounted for 11 percent of global demand in 2011, according to BP Plc. The nation, with a population of 1.34 billion, uses about 40 percent of the world’s copper, Barclays Plc estimates.
Gold wagers rose 8.1 percent 107,496 contracts, the biggest gain since Nov. 27. Those for silver increased 18 percent to 26,336 contracts, the highest in five weeks. Net-long positions in palladium jumped 14 percent to 18,972 contracts, the highest since the data began in 2009.
Demand for palladium will outstrip mine production for a second year in 2013 with a shortage of 620,000 ounces, Morgan Stanley analysts forecast in a report Jan. 24. The market will remain in a deficit through 2018, the bank said.
A measure of net-longs for 11 U.S. farm goods rose 4.4 percent to 356,462 contracts, the biggest increase since Dec. 4, CFTC data show. The S&P GSCI Agriculture Index of eight farm products is up 1.3 percent this month.
Wagers on higher soybean prices rose 23 percent to 97,794 contracts, the biggest gain since March 6, CFTC data show.
Cotton bets surged 67 percent to 41,605 contracts last week, the CFTC data show. Prices in New York jumped 7.2 percent in January, heading for the biggest monthly gain since August, on signs of higher demand from China, the top consumer. Cotlook Ltd., the publisher of a benchmark cotton index, cut its forecast for a global surplus by 2.4 percent on Jan. 25.
“The much-feared hard landing never materialized” in China, said Anthony Valeri, a market strategist in San Diego at LPL Financial, which oversees $350 billion of assets. “It looks like their growth is starting to reaccelerate. That’s certainly one factor behind rebounding commodities.”