CHICAGO: Hedge funds increased bullish bets on commodities by the most last week since August on mounting optimism the global economy will avoid another recession, boosting prospects for raw-materials demand. Money managers raised combined net-long positions across 18 US futures and options by 12% to 737,647 contracts in the week ended October 18, Commodity Futures Trading Commission data show. Wagers increased most in energy and agriculture, led by heating oil, gasoline, coffee and soybeans.
The Standard & Poor’s GSCI gauge of 24 commodities climbed 7.1% in October, on track for the biggest monthly advance this year, as European leaders moved closer to resolving the region’s debt crisis. Reports last week showed US housing starts jumped to the highest since April 2010 and manufacturing unexpectedly accelerated, increasing investor confidence that the world’s largest economy isn’t tipping back into recession.
“People are looking around saying, ‘You know what, the world isn’t ending’,” said John Stephenson, a senior vice president and fund manager at First Asset Investment Management in Toronto, which manages $2.7 billion of assets. “It’s time to buy some commodities.”
The S&P GSCI index tumbled 12% in September, the biggest loss since the financial slump of 2008, as Europe’s debt crisis, a more than doubling in US unemployment in four years and weaker growth in Chinese manufacturing threatened to erode demand for commodities. Prices rebounded on signs that supplies of metals, energy and agricultural products are still falling short of demand.
“The reason that commodities are going to come back: the emerging world growing, and the US growing,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $350 billion of assets. “Like stocks, you’re seeing somewhat of a return to risk in general, and certainly commodities are going to be a part of that play.”
Economic growth is likely to be “noticeably stronger” in the second half of the year, Federal Reserve Vice Chairman Janet Yellen said in a speech in Denver on October 21. The US expanded at a 1.3% annual pace in the second quarter, compared with 0.4% in the first three months, Commerce Department data show. Analysts surveyed by Bloomberg this month projected 2% growth in the third quarter.
Crude oil jumped 11% in New York trading since the start of October, heading for the biggest monthly gain since September 2010. Speculators increased bullish bets by 8.7% to 171,378 contracts, a second consecutive weekly expansion, CFTC data show.
Corn futures are up 11% on the Chicago Board of Trade this month, rebounding from a 23% plunge in September, the worst loss in records going back to 1959. Global production will fall short of demand for a second consecutive year in 2012, the US Department of Agriculture estimates.
Agricultural commodities are “primed for a bounce” because prices no longer reflect the balance between supply and consumption, Rabobank said in a report last week. Corn, the biggest US crop with a value of $66.7 billion last year, has the most to gain, the banks’ analysts said.