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.”
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.
Investors’ concern that Republicans and Democrats will be unable resolve their differences over the U.S. budget may limit gains for commodities, said Peter Jankovskis, who helps oversee $3 billion of assets as co-chief investment officer at Lisle, Illinois-based Oakbrook Investments.
The U.S. reached its $16.4 trillion borrowing limit on Dec. 31, and the Treasury Department is using what it terms “extraordinary” measures to finance the government. House Speaker John Boehner, an Ohio Republican, has said that any increase in the limit should be accompanied by a dollar-for-dollar cut in new government spending. President Barack Obama said it’s the responsibility of Congress to raise the debt ceiling and he won’t negotiate with Republicans, as he did in 2011.
China’s inflation accelerated more than forecast to 2.5% in December, the highest in seven months, the National Bureau of Statistics said on Jan. 11. The jump in consumer costs increased concern that officials may curb programs aimed at spurring growth.
“There is a big question on the horizon about what sort of cuts may be put in place by the U.S. government,” Jankovskis said. “China’s inflation will always be a factor the leaders will consider when they determine the stimulus measures.”
China, the largest oil-consuming country after the U.S., accounted for 11% of global demand in 2011, according to BP Plc’s Statistical Review of World Energy. The Asian nation, with a population of 1.34 billion, uses about 40% of the world’s copper, Barclays Plc estimates.
Money managers pulled a net $263 million from commodity funds in the week ended Jan. 9, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Outflows from gold and precious-metals funds totaled $1.07 billion, he said.
Energy and industrial metals are “undervalued” and an acceleration in global growth is creating a “more constructive outlook for commodity returns heading into 2013,” analysts at Deutsche Bank AG led by Michael Lewis, the London-based head of commodities research, said in a report Jan. 8.
Funds boosted positions on a crude-oil rally by 12% to 168,066 contracts, the highest since Sept. 25, CFTC data show. Futures have climbed for five consecutive weeks in New York, the longest rally since August.
Gold net-long positions tumbled 13% to 92,115 contracts, the lowest since Aug. 14. Those for silver slumped 7.7% to 21,002 contracts, a sixth straight drop that’s the longest run of declines since May. Silver prices climbed 1.5% last week, the first gain since Nov. 23.
A measure of net-longs for 11 U.S. farm goods dropped 16% to 328,443 contracts, the biggest loss in eight weeks, the CFTC data show. The S&P GSCI Agriculture Index of eight commodities jumped 2.1% last week, the most since July.
Corn holdings fell 15% to 115,113 contracts, the lowest since June 26. Futures rose 4.2% in Chicago last week, the most since July.
Stockpiles in the U.S., the top grower and exporter, shrank more than analysts expected because of a drought-reduced harvest and rising demand for livestock feed, a government report showed Jan. 11. Global inventories will decline 12% from a year earlier as Chinese consumption jumps 11%.
“China is in the middle of a bottoming process and a possible uptick,” said John Toohey, a vice president of equities investments with USAA Investments who helps manage about $54 billion of assets in San Antonio. “The recessionary worries in Europe are not as bad, and overall the global environment is more favorable than it was a few months back.”