Hedge funds cut positions to six-month low before rally

Hedge funds cut bullish commodity positions to the lowest since June before prices rallied to a two-month high on signs of a rebound in Chinese economic growth.

Speculators trimmed net-long positions across 18 futures and options by 5.4% to 654,443 contracts in the week ended Jan. 8, the lowest since June 19, U.S. Commodity Futures Trading Commission data show. Wagers on a corn rally dropped for a fifth week before a reduction in U.S. stockpile data sparked the biggest jump in prices in five months. Gold holdings fell to the lowest since August as the metal snapped a six-week slump.

The Standard & Poor’s GSCI gauge of 24 raw materials has climbed for five consecutive weeks, the longest stretch of gains since September. China’s exports rose more than forecast in December and a broad measure of credit surged 28%, separate reports showed Jan. 10. American retailers stocked up on foreign-made mobile phones and computers in November, widening the trade deficit amid signs that consumers remain resilient, Commerce Department data showed the next day.

“Economic data out of China and the U.S. is telling us that we are coming out of the soft patch,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets. “As long as the data continues to strengthen, we will see traders return to commodities.”

Commodity Rally

The S&P GSCI climbed 0.4% last week and reached 657.22 on Jan. 10, the highest level since Oct. 22. The MSCI All-Country World Index of equities rose 0.7%, and the dollar fell 1.2% against a basket of six major trading partners. A Bank of America Corp. index shows Treasuries returned 0.3%. The S&P GSCI gauge rose 0.2% to 650.76 at 10:07 a.m. in New York.

Overseas shipments from China increased 14% last month from a year earlier, the most since May, customs data showed. The country probably expanded 7.8% in the three months ended Dec. 31, snapping a seven-quarter slowdown, economists surveyed by Bloomberg forecast before a report scheduled for Jan. 18. Growth will accelerate to 8% this quarter, the survey shows.

Japan unveiled plans Jan. 11 to spend 10.3 trillion yen ($115 billion) on stimulating its economy out of a recession. The program is expected to increase gross domestic product by about 2% points and create about 600,000 jobs, the government said. European Central Bank President Mario Draghi said a day earlier that the region should gradually recover from contraction this year. Economic confidence in the euro area increased more than forecast in December, data showed Jan. 8.

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