(Bloomberg News) Hedge funds wagered the wrong way on commodity prices for a fourth consecutive week, boosting bullish holdings just before reports showing a contraction in manufacturing from China to Europe drove prices lower.
Money managers lifted combined net-long positions across 18 U.S. futures and options by 2.9 percent to 1.17 million contracts in the week ended March 20, Commodity Futures Trading Commission data show. The Standard & Poor's GSCI Spot Index of 24 raw materials dropped 1 percent last week, led by declines in lead and corn. Orange juice tumbled 11 percent, the most since August.
The S&P GSCI fell to a three-week low on March 22 after reports showed factory output in Germany and France unexpectedly shrank in March and a measure of China's manufacturing was the weakest since November. U.S. government data the following day showed purchases of new homes unexpectedly fell last month, increasing investor concerns about the durability of the world's largest economy.
"There are headwinds to growth right now, and therefore there are headwinds to commodities," said Walter 'Bucky' Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama.
The MSCI All-Country World Index of shares fell 1.1 percent last week, with about $607 million erased from the value of global equities, according to data compiled by Bloomberg. The dollar retreated 0.6 percent against a basket of six major trading partners, and Treasuries returned 0.4 percent, a Bank of America Corp. index shows.
Corn, Coffee
Eighteen of the 24 raw materials tracked by S&P fell last week. Corn tumbled 3.9 percent, the most since mid-January, as improving U.S. weather boosted the outlook for crops. Arabica coffee declined to the lowest since October 2010 on March 22 on signs of expanding output from Brazil, the world's top grower.
A preliminary reading in a Chinese purchasing managers' index from HSBC Holdings Plc and Markit Economics dropped to 48.1 this month. Readings below 50 signal contraction. A gauge of euro-region manufacturing fell to 47.7 in March from 49 in February, Markit said March 22.
China's steel output is slowing as the economy focuses more on consumers than large infrastructure projects, Ian Ashby, president of iron ore at BHP Billiton Ltd., the biggest mining company, said March 20. Rio Tinto Group, the second-biggest iron-ore exporter, also sees a slowdown in China, David Joyce, the London-based company's managing director of expansion projects, told a conference in Perth, Australia the same day.
'Petrified' Speculators