Hedge funds cut positions as stimulus dips

Reduction is second in two straight weeks

April 8 (Bloomberg) -- Hedge funds reduced bullish bets on commodities for a second consecutive week as the Federal Reserve signaled it may refrain from more monetary stimulus, increasing concern that growth will slow and curb demand for raw materials.

Money managers lowered net-long positions across 18 U.S. futures and options by 2.8 percent to 1.1 million contracts in the week ended April 3, data from the Commodity Futures Trading Commission show. Bets on higher corn prices fell to the lowest since February, while those on hogs dropped by the most since May. Speculators cut wagers on costlier crude oil for a third week, and are now the least bullish in two months.

Minutes from the March 13 Fed policy meeting released April 3 showed policy makers will probably hold off on increasing monetary accommodation unless the U.S. economic expansion falters. The Standard & Poor’s GSCI gauge of 24 commodities rose more than 80 percent from December 2008 to June 2011 as the central bank set rates at a record low and bought $2.3 trillion of debt in two rounds of quantitative easing. The U.S. economy will accelerate this quarter and the next, economist estimates compiled by Bloomberg show.

“The market is addicted to stimulus,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee $1 billion of assets. “This market has risen because of the liquidity push and the market will decline when it’s deprived of liquidity.”

Steepest Decline

The S&P GSCI index rose less than 0.1 percent last week after tumbling 2 percent the day after the Fed minutes were released, the steepest decline since mid-December. Cocoa, cotton,wheat and gold led the declines as corn, nickel and soybean futures advanced. The MSCI All-Country World Index of equities slid 1.6 percent, and Treasures returned 0.2 percent, a Bank of America Corp. index shows.

Goldman Sachs Group Inc.’s commodity research team, led by Jeffrey Currie in London, cut its three-month recommendation on raw materials to “neutral” on March 28, warning that the economy will “soften” this quarter. The S&P GSCI retreated 0.9 percent since then.

Bank of America Merrill Lynch’s team, led by Francisco Blanch in New York, retained an “overweight” recommendation April 2, citing the risk that conflict over Iran’s nuclear program will drive energy prices higher. Central banks are extending the provision of liquidity and cutting interest rates to shore up growth, the team wrote in a report to clients.

Next page: Stimulus effect

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