Hedge Funds Increase Bullish Bets Most Since August: Commodities

Date: Monday, December 3, 2012
Author: Elizabeth Campbell, Bloomberg

Hedge funds increased bullish bets on commodities by the most since August as evidence that China is accelerating outweighed concern that U.S. lawmakers have yet to resolve an impasse over automatic spending cuts and tax rises.

Speculators and money managers increased net-long positions across 18 U.S. futures and options by 9.8 percent to 929,588 contracts in the week ended Nov. 27, the biggest gain since Aug. 21, U.S. Commodity Futures Trading Commission data show. Gold holdings reached a six-week high, and wagers on a wheat rally jumped the most since June. Cattle bets more than doubled. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 1.9 percent in November, the first monthly gain since August.

 Nov. 19 (Bloomberg) -- Jack McDonald, chief executive officer of Conifer Group, talks about the outlook for the hedge-fund industry. He speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's "Market Makers." LionTree Advisors LLC's Aryeh Bourkoff also speaks. (Source: Bloomberg)

The world economy is in its best shape in 18 months because of the acceleration in China, the biggest consumer of everything from cotton to copper to coal, according to the Bloomberg Global Poll of 862 investors last week. The U.S. probably will avoid the so-called fiscal cliff that the Congressional Budget Office has warned risks sending the country back into recession, even as Europe remains mired in a debt crisis, the poll showed.

“I wouldn’t say that it was a green light all ahead for commodities, but the market is turning slowly based primarily on improved real numbers out of China that outweigh slowdowns in Europe and the U.S.,” said Adrian Day, who manages about $170 million of assets as president of Adrian Day Asset Management in Annapolis, Maryland. China is “overwhelmingly the most important factor,” he said.

Price Gains

The S&P GSCI rose less than 0.1 percent last week, led by gains in industrial metals and agriculture. The MSCI All-Country World Index of equities advanced 0.9 percent and the dollar fell 0.1 percent against a basket of six trading partners. Treasuries returned 0.4 percent, a Bank of America Corp. index shows. The GSCI gauge climbed as much as 1.1 percent today.

The U.S. economy, the world’s biggest, expanded 2.7 percent in the three months ended Sept. 30, more than economists forecast, according to Commerce Department data on Nov. 29. The S&P/Case-Shiller index of property values in 20 U.S. cities showed that home prices in the 12 months ended September advanced by the most since July 2010.

Confidence in China’s economy rose to the highest in more than a year amid optimism that the new leadership headed by Xi Jinping will improve the financial climate, according to the Bloomberg investor poll. Manufacturing in the country rose to the highest level in seven months in November, the National Bureau of Statistics said Dec. 1.

Tax Deadlock

A deadlock between President Barack Obama and Republicans in Congress over $600 billion in spending cuts and tax increases has extended over a year. Missing the deadline at the end of December means the economy goes over the so-called fiscal cliff and probably will tumble into a recession, the Congressional Budget Office reiterated Nov. 8.

“Until investors see the big overall grand bargain, investor sentiment and business decision-making will be somewhat uncertain,” said Chad Morganlander, a Florham Park, New Jersey- based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets. “It just means that there’s going to be a lackluster demand for commodities with very little reacceleration of economic activity.”

Debt Crisis

Germany, Europe’s largest economy, probably will face a recession as the sovereign-debt crisis roiling its neighbors extends into 2013, according to the Bloomberg Global Poll. About 18 percent of global copper demand comes from Europe, and the region consumes 22 percent of the world’s oil, according to estimates from Barclays and BP Plc. (BP/) The 17-nation euro zone fell back into recession in the third quarter.

Money managers withdrew $42 million from non-precious-metal commodity funds in the week ended Nov. 28, according to Cameron Brandt, the director of research for Cambridge, Massachusetts- based EPFR Global, which tracks money flows. Gold and precious- metal funds had a net inflow of $530 million. Investors raised bets on a gold rally by 13 percent to the highest since Oct. 16, CFTC data show. Silver holdings climbed 12 percent.

Holdings in exchange-traded products backed by gold rose to a record for an 11th day Nov. 30. U.S. Mint sales of American Eagle gold coins more than doubled in November to the highest since July 2010. The metal has advanced 9.6 percent this year, headed for a 12th annual gain.

Farm Goods

A measure of net-longs for 11 U.S. farm goods rose 9.1 percent, the biggest gain since Oct. 23, CFTC data show. The Standard & Poor’s GSCI Agriculture Index of eight farm products jumped 0.8 percent last week, the second consecutive increase.

Bullish bets on cattle more than doubled to the highest since Sept. 18. Futures jumped to a record $1.32925 a pound on Nov. 23 in Chicago trading amid shrinking supplies of beef and rising demand. The U.S. cattle herd was the smallest since at least 1973 as of July 1 as ranchers culled animals during the worst drought since 1956.

Corn holdings rose 2.7 percent to the highest since Oct. 23, and wagers on a wheat rally surged 35 percent, the biggest increase since June 26, CFTC data show. Wheat futures jumped 34 percent this year in Chicago as dry weather cut global production to a five-year low.

“The global economy continues to expand next year,” said Peter Sorrentino, who helps manage about $14.6 billion of assets at Huntington Asset Advisors in Cincinnati. “Commodities will not have a ‘shoot the lights out’ year but it should be a profitable year for commodities.”

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net