Commodities tumbled into a bear market Thursday as U.S. reports on manufacturing, jobless claims and home sales signaled a faltering economy after the Federal Reserve refrained from announcing another round of strong stimulus.
The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 2.8 percent to settle at 559 at 3:56 p.m. New York time. The gauge has dropped 22 percent from this year’s highest close of 715.52 on Feb. 24, entering a bear market. Earlier, the measure touched 558.14, the lowest since November 2010. Metals and energy led Thursday’s slump.
Manufacturing in the Philadelphia region contracted in June at the fastest pace in almost a year. Existing U.S. home sales fell more than forecast by analysts, and jobless claims topped estimates. Wednesday, the Fed, led by Chairman Ben S. Bernanke, reduced its 2012 forecast for economic growth, and policy makers extended their 'twist' operation but decided against a third round of debt purchases.
“We got nothing significant from Bernanke, and data continues to paint a horrible picture,” said Steve Mathews, the chief investment officer of Flintlock Capital Asset Management LLC in New York, which manages $105 million of assets. “We have to wait until the next Bernanke event to know if the Fed will indeed do something to perk the economy.”
The GSCI index surged 92 percent from the end of December 2008 to June 2011 as the Fed kept borrowing costs at a record low and bought $2.3 trillion of debt in two rounds of so-called quantitative easing.
The Fed reduced its 2012 estimate for economic growth to a range of 1.9 percent to 2.4 percent from 2.4 percent to 2.9 percent. The central bank extended its Operation Twist program, replacing short-term bonds with longer-term debt by $267 billion through the end of the year to lower borrowing costs and boost the economy.
Commodities slumped Thursday amid signs that manufacturing in China, the world’s biggest user of energy and metals, will shrink for the eighth straight month, matching the slump that started in 2008. The 48.1 preliminary reading for a purchasing managers’ index released during the day by HSBC Holdings Plc and Markit Economics compared with a final 48.4 for May. A reading above 50 shows expansion.
Crude oil fell to an eight-month low as factory data from the U.S., Europe and China signaled easing fuel demand amid increasing supplies.
Oil futures for August delivery fell 4 percent to $78.20 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 4.
“It doesn’t look like the economy is taking off anytime soon, and oil demand is pretty poor,” said Kyle Cooper, a director of commodity research at IAF Advisors in Houston.
Gold erased this year’s advance after tumbling the most in two months.
“People were expecting the Fed to hint at some sort of quantitative easing and they didn’t, so a lot of those people are bailing out,” Carlos Perez-Santalla, a broker at Hoboken, New Jersey-based PVM Futures Inc., said in a telephone interview. “The markets generally still believe something will, happen this year, but the Fed is a slow-moving ship.”
Gold futures for August delivery dropped 3.1 percent, or $50.30, to $1,565.50 an ounce on the Comex in New York, the biggest drop since April 4. The metal has declined 0.1 percent this year.
Copper fell the most in two months on the Fed statement and the Chinese manufacturing data.
“Most markets are lower as poor headlines have been coming at us all day,” Edward Meir, an analyst at INTL FCStone in New York, said in a report.
On the Comex, copper futures for September delivery fell 2.6 percent to $3.3065 a pound, the biggest drop for a most- active contract since April 4.
Cotton plunged 6.9 percent, the most among GSCI components.
Silver fell 5.5 percent, the most since April 4. Nickel slumped 4.4 percent. Zinc, heating oil, lead and corn fell more than 2 percent.
Only coffee and natural gas posted gains.
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