Hedge funds raised bets on higher commodity prices for the first time in six weeks, just before the biggest three-day slump since October as U.S. jobs data fell short of expectations and European manufacturing contracted.
Money managers increased net-long positions across 18 U.S. futures and options by 6.9 percent to 895,240 contracts in the week ended May 1, the biggest gain since Feb. 28, Commodity Futures Trading Commission data show. Bullish copper wagers surged sevenfold before prices fell for three days, and soybean bets reached the highest since at least June 2006 as the oilseed capped the biggest weekly loss since mid-January.
The Standard & Poor’s GSCI Spot Index of 24 raw materials tumbled 4.9 percent in the three sessions ended May 4, the most since Oct. 4. Reports showed last week that services and manufacturing output shrank last month in the euro region and the U.S. added fewer jobs than forecast in April. Open interest, or contracts outstanding, across commodities fell 2 percent in the seven sessions through April 30, the longest slide since November, data compiled by Bloomberg show.
“We had some soft data points along the edges that’s taken some of the steam out of the market,” said Kelly Wiesbrock, who helps manage $1.3 billion of assets for San Francisco-based hedge fund Harvest Capital Strategies. “It’s hard to know whether this is a just a little bit of a pause, or if this is something bigger.”
The S&P GSCI plunged 4.5 percent last week, the most since Dec. 16. The MSCI All-Country World Index of equities dropped 2.3 percent, and the dollar rose 1 percent against a basket of six major currencies. Treasuries returned 0.3 percent, a Bank of America Corp. index shows.
Twenty-two of the raw materials tracked by the S&P GSCI declined last week. Gasoline plunged 7.2 percent, copper dropped 2.7 percent and soybeans fell 1 percent. On May 4, crude oil slumped below $100 a barrel for the first time since February.
Payrolls in the U.S. rose 115,000 in April, the smallest gain in six months, the Labor Department said May 4. That compared with the median estimate of 160,000 in a Bloomberg survey of 85 economists. Unemployment in the 17 countries that use the euro rose to a 15-year high and manufacturing contracted for a ninth month, reports from the European Union’s statistics office and Markit Economics on May 2 showed. European Central Bank President Mario Draghi said May 3 that the economic outlook has become “more uncertain.”
Chinese home prices fell to a 14-month low in April, SouFun Holdings Ltd., the nation’s biggest real-estate website owner, reported May 2. The country is the biggest buyer of everything from copper to cotton to soybeans.
The outlook for commodity markets is weaker as China’s growth slows, Europe’s debt crisis intensifies and because the Federal Reserve is less likely to purchase more debt to stimulate growth, ABN Amro Bank NV said in a report May 2. The S&P GSCI rose more than 80 percent from December 2008 to June 2011 as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing and held borrowing costs at a record low.
Commodity prices may prove resilient as drought damages soybean crops in South America, copper inventories tumble and rains disrupt sugar supplies in Brazil, the biggest grower.
Sixteen of 24 analysts surveyed by Bloomberg expect soybeans to gain this week and one was neutral, the highest proportion since March 16. Prices reached $15.125 a bushel on May 2, the most since July 2008. Hedge funds lifted their wagers by 4.3 percent to 253,889 contracts, the CFTC data show.
Stockpiles of copper monitored by the London Metal Exchange tumbled 38 percent this year to the lowest level since October 2008. Jiangxi Copper Co. plans to ship metal to nearby LME warehouses to bring down prices, China’s largest producer of the metal said May 2.
“While there may be some slack from Europe, if the U.S. and emerging market economies continue to show signs of improvement, that will bode well for the commodity markets longer term,” said Nelson Louie, the global head of commodities at New York-based Credit Suisse Asset Management who helps manage $11 billion of assets.
Investors withdrew $357 million from commodity funds in the week ended May 2, according to data from Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metals outflows totaled $349 million, Cameron Brandt, the director of research, said by phone.
Speculators raised bets on higher crude-oil prices by 12 percent to 219,817 contracts, the biggest gain since Feb. 14, the CFTC data show. Crude oil declined 6.1 percent in New York last week, the most September.
U.S. crude stockpiles increased 2.84 million barrels to 375.9 million in the seven days ended April 27, the most since September 1990, according to an Energy Department report May 2. Domestic output gained 8,000 barrels a day to 6.12 million, the highest level since November 1999.
Wagers on copper increased sevenfold to 15,582, as prices slumped 2.7 percent, the first weekly drop in three. Bullish gold bets climbed 7.9 percent to 116,061, a four-week high. Bullion slumped 1.2 percent in New York last week on speculation that the Fed will be reluctant to buy more debt to shore up growth, easing concern that inflation will accelerate.
A measure of net-longs for 11 U.S. farm goods rose 0.1 percent to 512,512 contracts, the CFTC said. Corn holdings climbed 9 percent to 112,328, the biggest increase since March 6. Futures in Chicago dropped 0.8 percent last week, leaving prices down 4.1 percent this year.
Global food costs fell for the first time this year in April, the United Nations’ Food & Agriculture Organization said on May 3, and prices are down 10 percent from the all-time high reached in February 2011.
“Agriculture and other energy type commodities will most likely be dragged down due to concerns on slow growth of the U.S. and negative growth in Europe,” said Stephen Hammers, the Nashville, Tennessee-based chief investment officer at Compass EMP Funds, which manages about $1 billion of assets. “News is not expected to be as bright as it was last quarter.”
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