BS: Bullish Wagers at 16-Month High as Citi Sees Gains: Commodities
Bullish commodity wagers rose to a 16-month high just before the Federal Reserve’s pledge for more stimulus drove prices to a seventh weekly advance and banks from HSBC Holdings Plc to Citigroup Inc. forecast more gains.
Hedge funds and other speculators lifted their net-long positions across 18 U.S. futures and options by 0.3 percent to 1.33 million contracts in the week ended Sept. 11, the most since May 2011, U.S. Commodity Futures Trading Commission data show. Copper holdings surged 25-fold to 17,509 contracts, the biggest gain on record. Gold bets climbed to the highest since Feb. 28, and silver wagers advanced for a seventh week.
More than $1.4 trillion was added to the value of global equities last week after the Fed announced a third round of bond buying on Sept. 13 to revive growth. Inflation expectations measured by the break-even rate for five-year Treasury Inflation Protected Securities surged to the highest since May 2011. HSBC recommended investors increase their allocation to raw materials on Sept. 12. The U.S. stimulus plan came a week after China and Europe also announced stimulus measures.
“People will see commodities as something they want to hold, because they see these moves as inflationary,” said John Stephenson, who helps manage about C$2.7 billion ($2.8 billion) at First Asset Investment Management Inc. in Toronto. “It’s hugely bullish in the short run, now that all of the central banks seem to be singing from the same hymnal.”
Longest Rally
The Standard & Poor’s GSCI Spot Index of 24 commodities rose 2.6 percent last week, capping the longest run of weekly gains since October 2010. The MSCI All-Country World Index of equities jumped 2.9 percent, the most since January. The dollar slumped 1.8 percent against a measure of six major trading partners. Treasuries lost 0.9 percent, a Bank of America Corp. index showed.
Twenty of the 24 raw materials tracked by S&P advanced last week. Coffee surged 11 percent, the most since January 2006. Natural gas jumped 9.7 percent, the biggest gain since May.
Fed Chairman Ben S. Bernanke is trying to bring down an unemployment rate stuck above 8 percent since February 2009. The central bank said it will make open-ended purchases of $40 billion of mortgage debt a month and hold the benchmark interest rate near zero at least through mid-2015. European Central Bank President Mario Draghi said Sept. 6 that policy makers agreed to an unlimited bond-purchase program, the same week in which China approved a $158 billion subways-to-roads construction plan.
‘Supply Shocks’
Commodities will keep rising because of global stimulus actions and “possible supply shocks,” according to Fredrik Nerbrand, HSBC’s global head of asset allocation. The Fed’s plan for a third round of debt buying, known as quantitative easing, has “accelerated the momentum” for raw materials, Nannette Hechler-Fayd’herbe, Credit Suisse Group’s head of global financial markets research, said in a report Sept. 14. Prices will rise into the fourth quarter, Citigroup analysts led by Heath Jansen said in a report the same day.
The Fed’s plan won’t do enough to restore economic growth, according to James Dailey, who manages $215 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania.
U.S. industrial production shrank last month by the most since March 2009, Fed figures showed Sept. 14. Manufacturing shrank for a third month in August, the longest decline since the recession ended in 2009, a report from the Tempe, Arizona- based Institute for Supply Management showed Sept. 4.
China Slowing
China’s industrial output in August grew at the slowest pace in three years, the National Bureau of Statistics said Sept. 9, and imports unexpectedly fell, the customs bureau said the next day. The country is the world’s biggest consumer of metals and energy. The U.S., the biggest economy, is the top user of corn and crude oil.
The Fed “may be able to change the course of the Titanic by a little bit, but it can’t keep it from hitting the iceberg,” Dailey said. “The hope is that we not only get inflation, but that the policies will actually work in helping the economy. But the data continues to disappoint. It’s not clear how this policy would lead to better jobs numbers.”
Investors added $1.77 billion to raw-material funds in the week ended Sept. 12, the most in 32 weeks, according to EPFR Global. Precious metals accounted for $924 million of the inflows, the Cambridge, Massachusetts-based company said.
