Money managers lowered net-long positions across 18 US futures and options by 9.3% to 1.01 million contracts in the week ended April 10, the biggest reduction since December 20, data from the Commodity Futures Trading Commission show. Copper holdings tumbled 84%, the most since November. Hedge funds are now betting on lower cotton prices.
Chinas economy, the biggest consumer of energy and metals, expanded 8.1% last quarter, less than the 8.4% anticipated by economists surveyed by Bloomberg, government data showed April 13. The World Bank cut its growth estimate for the Asian nation to a 13-year low a day earlier. Commodities will drift lower this quarter as central banks refrain from adding further stimulus, UBS said in a report last week.
Many areas of the world that have been big sources of demand for commodities are slowing, said Bill Greiner, who helps manage $13 billion of assets as chief investment officer at Mariner Wealth Advisors in Kansas City, Missouri. If anything, we expect growth worldwide to be a little softer than people are looking for.
The Standard & Poors GSCI Spot Index of 24 raw materials dropped 1% last week, led by natural gas, sugar and copper, and dropped further today. The MSCI All-Country World Index of equities fell 1.5% for a second consecutive decline, reaching a two-month low on April 11. Treasuries returned 0.7%, a Bank of America index shows.
Fourteen of the raw materials tracked by the S&P GSCI retreated. Coppers 4.4% tumble was the biggest this year. Natural gas extended a slide to a 10-year low, trading below $2 per million British thermal units. Cotton futures rose 1.3%, rebounding from a 5.3% drop the prior week.
The World Bank said the China will grow 8.2% this year, down from a January projection of 8.4% and the slowest pace since 1999. Chinese Premier Wen Jiabao cut the nations economic growth target to 7.5% last month, the lowest since 2004. China accounts for 40% of copper consumption and 11% of oil demand, according to Barclays Capital and the International Energy Agency.
Confidence among US consumers cooled in April, a sign that the moderation in job growth may limit the biggest part of the economy, the Thomson Reuters/University of Michigans preliminary index of sentiment showed on April 13. Filings for unemployment benefits rose to a two-month high in the week ended April 7, the Labor Department said April 12. North America accounts for 11% of copper demand and uses 26% of the worlds oil, Barclays and International Energy Agency data show.
Slowing growth may prompt policy makers to increase monetary easing. The Peoples Bank of China reported on April 12 an unexpected surge in new yuan loans during March, showing the Communist Party may be trying to avoid a deeper decline in growth. On April 14, the Asian country widened the yuans trading band for the first time since 2007.
Federal Reserve Bank of New York President William C. Dudley and Fed Vice Chairman Janet Yellen endorsed the central banks view last week that borrowing costs are likely to stay low through late 2014. Speaking in New York on April 11, Yellen said she considers a highly accommodative policy stance to be appropriate in present circumstances.
Even without additional monetary easing, low interest rates and other existing policies will help support demand for commodities in the second half of the year, said Jason Schenker, president of Prestige Economics, an Austin, Texas-based consultant.
The world is awash in liquidity, said Schenker, who was the third-most accurate forecaster for industrial metals in Bloomberg Rankings the past eight quarters. Youve got a bunch of hammers out there looking for some nails. People need to put this money somewhere.
Investors pulled $636.2 million from commodity funds in the week ended April 11, the most since early January, according to Brad Durham, a managing director at Cambridge, Massachusetts- based EPFR Global, which tracks money flows. Gold and precious metals outflows totaled $290.3 million, the biggest exit since December 28, he said.
Minutes from the Feds March policy meeting, which were released on April 3, showed policy makers will probably hold off increasing monetary accommodation unless the US economic expansion falters.
Crude oil, copper, nickel and cotton may decline in the absence of further injections of stimulus measures, UBS analysts led by Hong Kong-based Peter Hickson said in the report on April 12.
Goldman Sachs Group commodity research team, led by Jeffrey Currie in London, cut its three-month recommendation on raw materials to neutral on March 28, saying that the economy will soften this quarter.
Money managers reduced their bullish bets on copper by 15,687 contracts to 2,955 as of April 10, the CFTC data show. Thats the lowest since funds were net-short, or betting on declines, in January.
The value of Chinese homes sold dropped 18% in the first three months of the year, the government reported April 13. Construction generates about 40% of demand for the metal, according to the Copper Development Association. Stockpiles monitored by the Shanghai Futures Exchange rose to the highest since at least 2003 on March 15 and have more than doubled this year.
A measure of 11 US farm goods showed speculators lowered wagers on a rally for agricultural commodities by 4.9% to 669,280. Holdings fell for a third week, the longest slump since December.
Speculators have a net-short position of 2,561 contracts in cotton, compared with net-long bets of 7,296 contracts a week earlier.
Sugar wagers dropped 9.4 percent to 107,232, the lowest in four weeks. Sixteen of 22 analysts expect prices in New York to decline next week and one was neutral, according to Bloombergs weekly sentiment survey. The traders were bearish for a seventh consecutive week, the longest stretch since
at least 2007, when the surveys began.
Theres more concern now over the possibility of a global recession, said James Dailey, who manages $215 million of assets at TEAM Financial Management in Harrisburg, Pennsylvania. Its quite difficult to navigate trading in commodities right now because things are going to have to get worse before policy makers step in.