Hedge Funds Raise Bullish Bets by Most in 16 Months: Commodities

January 03, 2012, 8:12 AM EST By Debarati Roy

(For more commodity columns, click CMMKT.)

Jan. 3 (Bloomberg) -- Speculators increased wagers on rising commodity prices by the most since August 2010 on signs that sustained economic growth will drive a rebound in raw materials from their first annual slump since the recession.

Hedge funds and other money managers increased combined net-long positions across 18 U.S. futures and options by 18 percent to 536,907 contracts in the week ended Dec. 27, Commodity Futures Trading Commission data show. Soybean holdings jumped more than ninefold and those for corn reached a five-week high. Speculators trimmed bets on declining prices for copper, cocoa, wheat, and soybean oil and meal.

While the Standard & Poor’s GSCI Total Return Index of 24 commodities declined 1.2 percent last year, it rallied 12 percent from a 10-month low reached in October on mounting optimism about growth. Confidence among American consumers rose in December to the highest level in eight months and pending sales of existing homes jumped in November for a second month. More than $3.3 trillion was added to the value of global equities since Oct. 4, data compiled by Bloomberg show.

“The U.S. is certainly putting the floor on commodities,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $330 billion of assets. “Data out of the U.S. flies in the face of recession. More and more people are saying: ‘Maybe things are not that bad.’”

Quarterly Rally

The S&P GSCI Total Return Index rose 9 percent last quarter, snapping two consecutive three-month drops. The MSCI All-Country World Index of equities rose 6.7 percent, the most in a year. The U.S. Dollar Index, a measure against six trading partners, gained 2.1 percent, the second straight quarterly advance, while the yield on 10-year Treasuries slid 2.1 percent, Bloomberg Bond Trader prices show.

Twelve of the 24 raw materials tracked by the S&P GSCI rose last week. Gains were led by wheat traded in Kansas City, which surged 6.2 percent. Cotton climbed 5.2 percent. Silver, cocoa, oil in New York and heating oil rose at least 2 percent today.

On a total return basis, commodities lost 1.2 percent last year, the first annual drop since 2008, as Europe’s debt crisis escalated and China’s economic growth cooled. Money managers have cut bets on higher prices by 65 percent since this year’s high in April. More than $10 trillion has been wiped off the value of global equity markets since May 1 as markets were roiled by concern that the world would tumble into recession.

Precious Metals

Investors withdrew $936 million from commodity funds in the week ended Dec. 28, according to data from EPFR Global, which tracks investment flows. Gold and precious-metals outflows accounted for $688 million, while $248 million was withdrawn from other commodities, said Cameron Brandt, the director of research at the Cambridge, Massachusetts-based research company. Inflows totaled $12.8 billion last year, of which $8.1 billion was into bullion, EPFR said.

“We have seen people reducing risks, and the future of commodities largely depends on whether Europe and U.S. can avoid a recession,” said Nic Johnson, who helps manage $30 billion in commodity assets at Pacific Investment Management Co. in Newport Beach, California.

Commodities plunged 46 percent in 2008 as the collapse of Lehman Brothers Holdings Inc. triggered the worst global recession since World War II. Prices rebounded 13 percent in 2009 and 9 percent in 2010 as governments around the world flooded markets with money to shore up growth.

‘Finding a Bottom’

“News from Europe continues to remain depressing, while U.S. economic reports are getting better and better, and people think we will find the bottom for most of the commodities soon,” said Michael Smith, the president of T&K Futures and Options in Port St. Lucie, Florida.

The U.S. expanded at a rate of 1.8 percent this year and will probably grow 2.1 percent in 2012, according to the median of 70 economist estimates compiled by Bloomberg. Fewer Americans filed applications for jobless benefits in the four weeks through Dec. 24 than at any time since June 2008, according to figures from the Labor Department on Dec. 29.

Goldman Sachs Group Inc. said in a Dec. 1 report that the world probably will avoid a recession and maintained its “overweight” allocation to commodities, predicting a 15 percent return in the next 12 months. A close balance between supply and demand across raw materials “could drive a strong price rebound in early 2012,” Barclays Capital said last month.

Farm Bets

A measure of 11 U.S. farm goods showed speculators increased bullish bets in agricultural commodities by 35 percent to 273,677 contracts. That’s the biggest gain since July 2010.

Soybean wagers surged to 23,683 from 2,575 a week earlier, the CFTC data show. Prices jumped 6.8 percent in December, the biggest monthly gain since August. Corn holdings climbed 18 percent to 148,653 contracts, the highest since Nov. 22.

Lower-than-average humidity and dry soil will curb crop development in Argentina and southern Brazil through at least Jan. 7, according to T-Storm Weather LLC, a forecaster in Chicago. Nineteen of 25 traders surveyed by Bloomberg expect corn to advance this week.

A La Nina weather pattern is similar to the 2008-2009 growing season, according to T-Storm. In that period, there was at least a 30 percent plunge in Argentina’s grain and oilseed production, a 13 percent decline in Brazil’s corn output. The La Nina phenomenon typically brings heavier rainfall in Asia and drier weather in South America.

“The headlines out of Europe have not gotten any worse, and the U.S. economy is improving, so in general the story for commodities can only get better,” John Stephenson, who helps manage $2.6 billion at First Asset Management Inc. in Toronto, said in a telephone interview.

--Editors: Millie Munshi, Steve Stroth

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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Economy Avoiding ‘Death Spiral’ Boosts Fund Wagers: Commodities

December 05, 2011, 8:13 AM EST By Whitney McFerron

(For more commodity columns, click CMMKT.)

Dec. 5 (Bloomberg) -- Hedge funds boosted wagers on higher commodity prices for the first time in three weeks as the outlook for the U.S. economy improved.

Money managers increased combined bullish positions across 18 U.S. futures and options by 0.7 percent to 566,494 contracts in the week ended Nov. 29, Commodity Futures Trading Commission data show. Investors trimmed their bearish holdings in copper for the first time in four weeks, and pared bets on lower wheat and soybean prices.

The value of world equities rose more than $2.2 trillion last week as the MSCI All-Country World Index climbed for five consecutive days, the longest rally since October. The Federal Reserve and five other central banks made it easier and cheaper for banks to obtain dollars in emergencies and China, the biggest consumer of everything from energy to copper to soybeans, lowered banks’ reserve requirements for the first time since 2008. The U.S. jobless rate fell to a two-year low in November.

“We’re more on a moderate growth path, not the death spiral people feared two months ago,” said Michael Strauss, who helps oversee about $27 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut. “That puts a little bit more support into commodities.”

Copper Rallies

The Standard & Poor’s GSCI Commodity Index jumped 3.5 percent last week, the most since mid-October, led by copper, zinc and aluminum. The MSCI All-Country World Index gained 8.4 percent while the Dollar Index, a measure against six trading partners, slipped 1.3 percent. The yield on 10-year Treasuries rose 7 basis points, or 0.07 percentage point, according to Bloomberg Bond Trader prices.

Twenty-one of the 24 commodities tracked by the GSCI rose last week, while coffee, hogs and cocoa declined. Copper rose 9.2 percent, the most in five weeks, and wheat gained 6.2 percent in the biggest advance since mid-July.

Commodities will return 15 percent in the next 12 months, led by industrial metals and energy, Goldman Sachs Group Inc. said in a report Dec. 1. The S&P GSCI rebounded 15 percent since Oct. 4, when mounting concern about the European debt crisis drove the index to the lowest since November 2010.

U.S. consumer confidence surged in November by the most in eight years, the Conference Board, a New York-based private research group, reported Nov. 29. Manufacturing expanded at the fastest speed in five months, according to the Institute for Supply Management’s factory index on Dec. 1.

80 Commodities

Four of the six largest automakers in the U.S. beat analysts’ expectations in November, boosting industry sales to the fastest pace since August 2009, Woodcliff Lake, New Jersey- based Autodata Corp. reported Dec. 1. Palladium, used mostly in catalytic converters, surged 13 percent last week, the most of any of the 80 commodities tracked by Bloomberg.

The GSCI gauge climbed 1.6 percent last month for a second consecutive gain. While the index is 14 percent lower than the 32-month high reached in April, it’s still up 4.2 percent for the year. When economies tumbled into recession in 2008, the gauge fell as much as 66 percent.

China’s growth may slow to 8.5 percent next year, compared with 9.3 percent in 2011, the Organization for Economic Cooperation and Development in Paris said in a report Nov. 28. Chinese manufacturing slowed last month to the weakest since February 2009, according to an index from the China Federation of Logistics and Purchasing.

‘Slow-Growth Mode’

In the 17-nation euro region, a manufacturing gauge based on a survey of purchasing managers fell to the lowest since July 2009, London-based Markit Economics said Dec. 1. Europe accounts for 19 percent of global copper demand and consumes about one in six barrels of the world’s oil, according to Barclays Capital and the International Energy Agency.

“We think Europe is in the process of entering a recession,” said John Bailey, the founder and chief executive officer of Stamford, Connecticut-based Spruce Private Investors LLC, which manages about $3 billion of assets. “Even if the U.S. stabilizes into a slow-growth mode, there are other challenges you’re starting to see. The numbers coming out of China have been weaker than expected.”

Funds pulled $122 million out of commodities in the week ended Nov. 30, even as gold and precious-metal investments had a net-inflow of $446 million, said Cameron Brandt, the director of research at Cambridge, Massachusetts-based EPFR Global, which tracks investment flows.

Crude Net-Longs

“There was definitely some enthusiasm in the past few days, with China switching its reserve policy and more good U.S. data,” Brandt said by phone. “Inflows next week may be driven by non-gold funds.”

Net-long positions in crude oil rose 2.6 percent from a week earlier to 194,695 contracts, according to CFTC data. Futures climbed 4.3 percent to $100.96 a barrel on the New York Mercantile Exchange last week, the most since mid-November. The most widely held option gives holders the right to buy oil at $150 by November, exchange data show.

Speculators trimmed bets on lower copper prices to 7,017 contracts, from 7,731 a week earlier, the CFTC data show. Twelve of 24 analysts surveyed by Bloomberg expect the metal to advance this week and two were neutral, the first majority bullish outlook in six weeks. Stockpiles monitored by exchanges in London, New York and Shanghai fell 23 percent since March.

Supply ‘Struggle’

Copper will average a record $4.14 a pound in 2012, as economic concerns dissipate amid the “struggle simply to maintain, never mind increase, copper-mine output,” analysts at Macquarie Capital (Europe) Ltd. led by London-based Jeff Largey said in a report Dec. 1. Prices averaged $4.06 this year on the Comex exchange in New York.

A measure of 11 U.S. farm goods showed speculators increased bullish bets in agricultural commodities by 2.4 percent to 267,643 contracts, the first gain in three weeks.

“We have seen a nice rally in the past couple of weeks as investors rush back to risk assets,” said Peter Buchanan, a senior economist and commodity analyst at CIBC World Markets Inc. in Toronto. “What we’ve really seen is the risk-on, risk- off trade.”

--Editors: Millie Munshi, Steve Stroth

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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U.S. Stocks Rise as Commodities Rally on Goldman Recommendation

May 24, 2011, 9:58 AM EDT By Rita Nazareth

May 24 (Bloomberg) -- U.S. stocks rose, rebounding from a one-month low, as commodities rallied after Goldman Sachs Group Inc. signaled a positive outlook for raw materials.

Freeport-McMoRan Copper & Gold Inc. and AK Steel Holding Corp. rallied at least 1.5 percent. El Paso Corp., owner of the largest U.S. network of interstate natural-gas pipelines, jumped 7.1 percent amid plans to spin off its exploration and production unit. AutoZone Inc. climbed 5.1 percent as profit at the auto-parts retailer topped estimates. GT Solar International Inc. soared 11 percent after the maker of polysilicon manufacturing equipment forecast earnings that beat projections.

The Standard & Poor’s 500 Index increased 0.3 percent to 1,321.20 at 9:33 a.m. in New York. The gauge yesterday had the biggest decline in two months. The Dow Jones Industrial Average advanced 22.41 points, or 0.2 percent, to 12,403.67 today.

“There’s a battle between good long-term fundamentals and short-term uncertainties,” said David Kelly, who helps oversee about $445 billion as chief market strategist for JPMorgan Funds in New York. “It’s most likely that any slowdown in the global economy is temporary. There are reasons why economic growth should pick up around the world on the second half of the year. If you buy that notion, this is a good time to take advantage of that. The stock market still looks attractive for the long run.”

Commodities, Europe

The S&P 500 fell 3.4 percent through yesterday since climbing to a three-year high on April 29 amid a commodity slump and concern about Europe’s debt crisis. Still, the benchmark has rallied 4.8 percent from the end of 2010 amid government stimulus measures and higher-than-estimated earnings.

Goldman Sachs and Morgan Stanley increased their oil price forecasts by more than 20 percent, signaling a bullish outlook for commodities. Goldman, which correctly advised investors to sell crude oil and copper last month before a price slump, boosted its 12-month prediction for Brent crude to $130 a barrel from $107, analysts led by Jeffrey Currie said in a report today. Morgan Stanley raised its Brent estimate by 20 percent to average $120 a barrel this year and by 24 percent to $130 in 2012, it said.

“Economic growth will likely be sufficient to tighten key supply-constrained markets in the second half, leading to higher prices from current levels,” the Goldman analysts said. They also advised buying copper and zinc.

‘Underweight’

The S&P GSCI spot index of 24 commodities lost about 10 percent through yesterday since New York-based Goldman told investors on April 11 to sell a basket of commodities including oil, copper and cotton, and in the same week recommended they stay “underweight” in raw materials. Global manufacturing activity measured by the JPMorgan index slowed for two consecutive months and stood at 55 in April. A reading of 50 and above suggests expansion.

Purchases of new houses probably held close to a record low in April, showing the real-estate market remains a weak link in the U.S. expansion, economists said before a report today. New homes sold at a 300,000 annual pace last month, the same as in March, according to the median forecast of 75 economists surveyed by Bloomberg News. Purchases sank to a 270,000 pace in February, the weakest in 48 years of data.

Some commodities producers rallied as oil and metal prices gained. Freeport, the world’s largest publicly traded copper producer, rose 2.2 percent to $48.47. AK Steel added 1.6 percent to $14.30 as the third-largest U.S. steelmaker by sales said it will increase prices for all carbon flat-rolled steel products by at least $50 per ton to recover higher costs.

Tax-Free Spinoff

El Paso jumped 7.1 percent to $20.32. The company plans a tax-free spinoff, Chairman and Chief Executive Officer Douglas Foshee said at an analyst meeting in New York today. The decision comes after pipeline operator Williams Cos. said on Feb. 16 it will sell 20 percent of its production unit later this year. The company said it will sell the stake in an initial public offering and spin off the rest in 2012, to give shareholders “greater value.”

“Given the quality of El Paso’s pipeline assets, we believe there would be strong demand for a purer-play pipeline company,” Citigroup Inc. analysts Faisel Khan and Timm Schneider said in a May 20 note to clients. The exploration and production unit may be worth as much as $15 a share and it may have an $8 billion enterprise value, which includes the sum of shares and debt less cash, they wrote.

AutoZone rose 5.1 percent to $290.94. The U.S. auto-parts retailer reported third-quarter earnings of $5.29 a share, topping the $4.97 estimated by analysts on average.

GT Solar International jumped 11 percent to $12.92. The maker of polysilicon manufacturing equipment raised its 2012 earnings estimate to at least $1.55 a share, more than the average analyst estimate of $1.48 a share. The company also raised its revenue projection.

--Editors: Joanna Ossinger, Michael Regan

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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European Stocks Rise; BHP Billiton Gains as Commodities Rebound

May 24, 2011, 10:40 AM EDT By Adria Cimino

May 24 (Bloomberg) -- European stocks advanced, with the benchmark Stoxx Europe 600 Index rebounding from a one-month low, as commodities rallied and a report showed that U.S. new- home sales increased more than forecast last month.

BHP Billiton Ltd., the world’s biggest mining company, and Rio Tinto Group, the third largest, both gained at least 2.5 percent as metal prices rose. Travis Perkins Plc climbed 4 percent after Jefferies Group Inc. recommended buying the company’s shares.

The Stoxx 600 rose 0.5 percent to 276.27 at 3:16 p.m. in London. The index fell last week after Greek 10-year bond yields climbed to a record and Fitch Ratings cut Greece’s credit rating to B+, four notches below investment grade. The Stoxx 600 yesterday erased its gains for the year after Spain’s ruling Socialist Party suffered its worst election defeat in 30 years and Standard & Poor’s said it may downgrade Italy’s debt.

“Even if economic growth isn’t as strong, in the long term commodity stocks always tend to go higher,” said Jacques Porta, a Paris-based fund manager at Ofi Patrimoine, who helps oversee about $425 million in stocks. “I’m overweight on them. Everyone is. It’s a story of supply and demand. Emerging markets are big consumers of commodities.”

German business confidence remained unexpectedly unchanged in May as booming exports and rising company spending boosted economic growth. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, held at 114.2, the same as in April. Economists had forecast a decline to 113.7, the median of 24 predictions in a Bloomberg News survey showed.

U.S. Home Sales

In the U.S., a Commerce Department report showed that purchases of new houses rose in April to the most so far this year. Sales climbed 7.3 percent to a 323,000 annual pace last month. The median estimate in a Bloomberg News survey of economists called for sales at a 300,000 annual rate, unchanged from the prior month. Housing prices rose from a year earlier.

National benchmark indexes gained in 16 of the 18 western European markets. France’s CAC 40 Index climbed 0.5 percent. Germany’s DAX Index and the U.K.’s FTSE 100 Index increased 0.9 percent.

Of the 312 Stoxx 600 companies that have reported earnings since April 11, 58 percent have beaten analysts’ estimates, according to data compiled by Bloomberg.

BHP, Rio, Xstrata

BHP Billiton climbed 2.5 percent to 2,361 pence as copper, lead, zinc and aluminum advanced in London. Rio Tinto increased 2.7 percent to 4,142.5 pence and Xstrata Plc rose 2.8 percent to 1,395 pence. A gauge of basic-resource shares was the best performing of the 19 industry groups in the Stoxx 600. Commodities rebounded from the biggest drop in almost two weeks after Goldman Sachs Group Inc. said it’s turning “more bullish” on raw materials.

Anglo American Plc increased 2.4 percent to 2,897.5 pence. Kazakhmys Plc, a Kazakh copper miner listed in London, gained 3.1 percent to 1,244 pence. Antofagasta Plc, the copper producer controlled by Chile’s Luksic family, jumped 4.1 percent to 1,207 pence.

Travis Perkins jumped 4 percent to 1,041 pence. The shares were initiated with a “buy” rating at Jefferies, which said the stock has 30 percent upside potential.

Arkema SA surged 3.5 percent to 74.31 euros. The stock was raised to “overweight” from “neutral” at HSBC, which said its valuation is the cheapest among European chemical companies.

Mitie, Gas Natural

Mitie Group Plc rallied 5.1 percent to 231.6 pence, its second day of gains, after the company yesterday reported results that showed “an encouraging pick-up in organic growth,” according to a report from UBS AG analyst Alex Hugh, who raised his price estimate on the shares 7.7 percent to 280 pence each. Royal Bank of Scotland Group analyst Kean Marden wrote in a report today that the company’s organic sales growth guidance may be “conservative.”

Gas Natural SDG SA added 1.7 percent to 13.14 euros. The company plans to increase its capital and give Algeria’s national oil company Sonatrach a 10 percent stake as part of a compensation deal, Cinco Dias reported, citing unidentified people close to the matter.

Gas Natural will make an additional payment in cash, settling the remaining money it owes Sonatrach in future price accords for gas supplies, the newspaper said. The Spanish company said it has yet to reach an agreement with Sonatrach.

Greek Privatizations

Greek stocks advanced after the government announced a stepped-up plan to sell holdings in companies including Hellenic Telecommunications Organization SA.

Hellenic Telecom soared 4.2 percent to 6.76 euros. Hellenic Postbank SA surged 5.7 percent to 2.97 euros after the government said it may sell all its 34 percent stake in the lender this year.

Marks & Spencer Group Plc declined 2.4 percent to 387.5 pence. The U.K.’s largest clothing retailer said the outlook for the economy remains challenging as consumers continue to experience a squeeze on their disposable incomes. The company reported fiscal full-year underlying pretax profit of 714.3 million pounds ($1.2 billion). That beat the average analyst estimate of 711 million pounds.

Renewable Energy Corp. slumped 14 percent to 13.13 kroner, its largest drop since February 2010, after the company forecast that it will make a smaller second-quarter operating profit than it did in the first quarter. Renewable Energy also said it will cut its output of wafers, cells and modules in response to current market conditions.

--Editor: Will Hadfield

To contact the reporter on this story: {Adria Cimino} in Paris at acimino1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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U.S. Stocks Advance Amid Dell Earnings as Commodities Rebound

May 18, 2011, 12:59 PM EDT By Rita Nazareth

May 18 (Bloomberg) -- U.S. stocks rose, snapping a three- day drop for benchmark indexes, as earnings at companies including Dell Inc. beat estimates and commodities rebounded.

Dell, the world’s second-largest computer maker, climbed 5.2 percent as corporate spending helped the company withstand a slump in consumer demand. Teen retailer Abercrombie & Fitch Co. added 2.5 percent as profit also beat estimates. Freeport- McMoRan Copper & Gold Inc. and Halliburton Co. rose at least 3.5 percent as commodities climbed for the first time in three days amid signs of increasing demand from emerging markets.

The Standard & Poor’s 500 Index advanced 0.5 percent to 1,335.93 at 12:36 p.m. in New York, after losing 1.5 percent over the last three days. The Dow Jones Industrial Average increased 33.07 points, or 0.3 percent, to 12,512.65 today. Energy shares led gains in the S&P 500 as oil rallied after an unexpected decline in inventories.

“I see a lot of green on my screen,” said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, which manages $2 billion. “We got Dell as a turnaround story. Commodities were looking for an opportunity to bounce and traders will take advantage of it. Europe has somewhat kept a lid on the market. If we see defaults, it probably does ripple through the markets. Still, the defaults are likely to occur in smaller markets with limited global economic impact.”

Damped Optimism

The S&P 500 yesterday fell to a one-month low as a reduced sales forecast at Hewlett-Packard Co. and an unexpected decline in housing starts damped optimism about the economic recovery. The measure slid 2.5 percent through yesterday since climbing to an almost three-year high on April 29 amid concern about Europe’s debt crisis.

Still, the benchmark gauge advanced 5.7 percent in 2011 through yesterday amid government stimulus measures and higher- than-estimated corporate earnings. More than two-thirds of the 446 companies that reported results since April 11 topped the average analyst earnings projection, according to data compiled by Bloomberg.

“We’ve got good earnings surprises,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, who helps manage $275 billion. “The numbers will continue to be a lot stronger than people think. Of the developed world, I like the U.S. by far. From a 50,000 foot level, I’m avoiding Europe because they have a huge bunch of problems.”

‘Magical Thinking’

U.S. Treasury Secretary Timothy F. Geithner said budget deficits threaten to erode the nation’s economy and security and can’t be reduced with “magical thinking.” Geithner also said Europe has the capability to handle the region’s debt crisis.

“They just have to do it,” he said on a panel in New York after a screening of the HBO film “Too Big to Fail” yesterday.

European Central Bank officials ruled out a Greek debt restructuring, clashing with political leaders over a solution to the sovereign financial crisis.

“A Greek debt restructuring is not the appropriate way forward -- it would create a catastrophe” because it would damage the banking system, ECB Executive Board member Juergen Stark said today in Lagonissi, Greece. Fellow board member Lorenzo Bini Smaghi said in Milan that “a solution for reducing debt but not paying for it will not work.”

Squeeze More Profit

Dell climbed 5.2 percent to $16.73. It’s the second straight quarter that the company’s results outshined those of rival Hewlett-Packard Co. A slowdown in home-computer sales has roiled industry leader Hewlett-Packard, which cut its annual sales forecast yesterday. While Dell also saw its consumer revenue drop, the company said it was able to squeeze more profit out of each sale.

Abercrombie & Fitch rose 2.5 percent to $75.02. The teen retailer reported first-quarter earnings from continuing operations of 27 cents a share. On average, the analysts surveyed by Bloomberg estimated profit of 13 cents a share.

Gauges of energy and raw-materials producers rallied at least 1.6 percent, the two biggest gains within 10 S&P 500 groups. The S&P GSCI Index of 24 raw materials gained as much as 3 percent. Oil futures advanced 3.6 percent to $100.41 a barrel after Energy Department data showed an unexpected drop in U.S. inventories as refineries bolstered operating rates and imports declined.

Freeport, the world’s largest publicly traded copper producer, advanced 3.5 percent to $48.47. Halliburton added 3.8 percent to $47.05.

Staples Tumble

Staples Inc. tumbled 16 percent to $16.49. The office- supply retailer forecast 2011 earnings of $1.45 a share at most. On average, the analysts surveyed by Bloomberg estimated profit of $1.53 a share.

U.S. stocks are more vulnerable to a rising dollar than at any other time in the past four decades, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.

Through the first four months of the year, the Dollar Index dropped 7.7 percent. The indicator of the dollar’s value against the currencies of six major U.S. trading partners ended April at its low for the year. Since then, the index has risen as much as 3.9 percent.

“The dollar rally is a headwind” that may cause stocks to drop in the next three months, Zyblock wrote today in a report. By his reckoning, the so-called inverse correlation between the currency’s value and shares is the strongest since 1971.

Disappointing economic reports also indicate share prices are poised to fall, the report said. He cited a Citigroup Inc. index that compares indicators with estimates for 10 of the largest economies. The gauge fell last week to minus 23.7, its lowest reading in two years.

Zyblock recommended that clients add to investments in health care and consumer staples, such as food, beverages and tobacco. He also suggested that they reduce holdings of energy and raw-material producers, the “most susceptible to further increases in the dollar and/or global economic growth scares.”

--With assistance from David Wilson in New York. Editors: Joanna Ossinger, Jeff Sutherland

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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European Stocks Drop as Commodities Extend Rout; BHP, Rio Slide

May 12, 2011, 7:35 AM EDT By Sarah Jones

May 12 (Bloomberg) -- European stocks dropped for the first time in three days, as commodities extended yesterday’s rout and insurance companies fell. U.S. index futures and Asian shares also retreated.

BHP Billiton Ltd. and Rio Tinto Group lost more than 3 percent after copper slumped to a five-month low and crude fell below $98 a barrel. Insurers declined as companies from Allianz SE to Aegon NA reported earnings. Thales SA dropped 4.1 percent on a report that the company may make a cash contribution as part of an asset swap with Safran SA.

The benchmark Stoxx Europe 600 Index retreated 1.1 percent to 280.6 at 12:08 p.m. in London for the biggest drop in a week. The gauge yesterday increased for a second day as companies from A.P. Moeller-Maersk A/S to Hermes International SCA posted results that topped estimates. Standard & Poor’s 500 Index futures lost 0.5 percent today.

“It’s a pretty tense trading session today with European markets under pressure after a weak Asian market and early forced selling in commodities,” said Lex van Dam, a London- based fund manager at Hampstead Capital LLP, which oversees $500 million. “Asian markets have been trading badly for the last six months and it feels that this might be spreading to Europe.”

The MSCI Asia Pacific Index extended yesterday’s selloff in the U.S., slipping 1.6 percent today. The benchmark gauge has climbed 3.1 percent over the last six months, while the Stoxx 600 has risen 7.6 in dollar terms.

U.S. stocks dropped the most since March 16 yesterday after commodities tumbled amid a strengthening dollar and concern that accelerating global inflation may curb economic growth. China today raised bank’s reserve requirements by 0.5 percentage points with effect from May 18.

Earnings Season

Thirty-two companies on the Stoxx 600 are scheduled to report results today. Of the 272 companies in the gauge that have reported earnings since April 11, 59 percent have beaten analyst forecasts for per-share profit, according to data compiled by Bloomberg. That compares with 72 percent of U.S. companies in the same period.

A U.S. Commerce Department report today may show that retail sales climbed in April as employment accelerated. Figures from the nation’s Labor Department may show fewer workers filed claims for jobless benefits last week, while wholesale costs rose. All three reports are scheduled for release at 8:30 a.m. in Washington.

BHP, the world’s largest mining company by market value, and Rio Tinto, the third-biggest, led commodity shares lower. BHP dropped 3.1 percent to 2,331 pence and Rio slid 3.3 percent to 4,047 pence. Anglo American Plc lost 3.4 percent to 2,889 pence.

Copper, Oil Slide

Copper tumbled to a five-month low as speculation mounted that China may continue monetary tightening after inflation spread beyond food, damping the demand outlook in the world’s largest consumer of the metal. Aluminum and zinc also retreated.

Crude oil extended yesterday’s 5.5 percent selloff, falling 2.3 percent to $95.96 a barrel in New York today. The contract dropped yesterday after the U.S. Energy Department reported a surge in stockpiles last week.

Allianz slid 2.5 percent to 99.11 euros after Europe’s biggest insurer posted a 45 percent drop in first-quarter net income to 857 million euros ($1.2 billion) on natural-disaster claims and lower investment gains.

Operating profit at the property and casualty unit, Allianz’s most important in terms of earnings, dropped 6.9 percent to 663 million euros. The company on May 4 predicted that it will face claims of about 320 million euros from the earthquake and subsequent tsunami in Japan.

Aegon, RSA Insurance

Aegon sank 5.6 percent to 5.07 euros after the Dutch insurer reported a 12 percent drop in first-quarter profit to 327 million euros as it posted lower investment gains. Earnings missed the 337 million-euro average estimate of 11 analysts surveyed by Bloomberg.

RSA Insurance Group Plc slid 1 percent to 138.4 pence. The U.K.’s biggest non-life insurer by market value said first- quarter sales rose 8 percent on growth in emerging markets. RSA posted net written premiums of 2.1 billion pounds ($3.4 billion) in the three months to March 31.

Thales sank 4.1 percent to 28.98 euros after Les Echos reported that the company may make a cash contribution of as much as 500 million euros as part of a possible asset swap with Safran. The newspaper cited an unidentified person familiar with the talks.

Thales, Europe’s largest defense-electronics producer, posted first-quarter revenue of 2.52 billion euros after the close of trading yesterday. That compares with 2.48 billion euros a year earlier.

Iberdrola’s Plans

Scottish & Southern Energy Plc rose 1.6 percent to 1,372 pence after Expansion reported that Iberdrola SA is considering a takeover bid for the U.K. utility or a merger with Germany’s RWE AG to dilute Actividades de Construccion y Servicios SA’s stake of about 20 percent in the company.

The newspaper cited people in the banking industry without naming them. An Iberdrola spokesman declined to comment on Expansion’s report. The Spanish company lost 1.2 percent to 6.16 euros, while RWE slid 1.4 percent to 43.22 euros.

3i Group Plc surged 8.2 percent to 293.9 pence after Britain’s biggest publicly traded private equity firm said the value of its assets increased by 9.4 percent as economic growth in emerging economies boosted the earnings of the companies that it owns.

Sky Deutschland AG jumped 6.9 percent to 3.42 euros after the pay-TV operator posted a first-quarter loss before interest, taxes, depreciation and amortization that narrowed to 55 million euros. The broadcaster lost 64.5 million euros on the same basis a year earlier.

--Editors: Will Hadfield, Andrew Rummer

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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Investors Shifting to Cash From Commodities, Poll Shows

May 12, 2011, 5:17 AM EDT By Rich Miller

(Updates with commodity index and oil in seventh paragraph. For more on the poll, {POLL })

May 12 (Bloomberg) -- Global investors have tempered their optimism about the U.S. and world economies and plan to put more of their money in cash and less in commodities over the next six months, a Bloomberg survey found.

Almost 1 in 3 of those questioned say they will hold more cash, while 30 percent intend to reduce investments in commodities, according to a quarterly Bloomberg Global Poll of 1,263 investors, analysts and traders who are Bloomberg subscribers. Both results were the highest since the survey began asking the question last June.

A plurality -- 40 percent -- expects oil prices to fall in the next six months, the first time respondents felt that way since the inception of this poll in July 2009.

The “big stimulus game is over,” said Bill O’Connor, a poll participant and founder of Sagg Main Capital hedge fund in New York, in explaining why he’s moving money into cash as the Federal Reserve winds up its bond-buying program and U.S. lawmakers look to cut the budget.

Fewer than 4 in 10 of those surveyed described the U.S. and global economies as improving, down from about 50 percent who felt that way back in January. U.S. economic growth slowed to 1.8 percent in the first quarter of this year, down from 3.1 percent in the final three months of 2010. Home prices fell in more than three-quarters of U.S. cities in the first quarter of 2011, according to the National Association of Realtors.

Bearish on Stocks

The poll, conducted May 9-10, also found that investors’ ardor for stocks is cooling. Two in 5 intend to increase their exposure to equity markets over the next six months, down from almost 3 in 5 in the last poll in January. U.S. investors in particular have become less keen on stocks: Just 37 percent say they are increasing their exposure, down from 57 percent in the previous poll.

The survey was taken after a turbulent week in the markets that saw commodity prices suffer their biggest decline in more than two years. The Standard & Poor’s GSCI Total Return Index of 24 commodities dropped 11 percent last week, led by a 27 percent collapse in silver prices. The gauge fell 3.9 percent yesterday and another 0.9 percent by 9:29 a.m. in London today. Crude oil fell below $100 a barrel in New York trading yesterday.

More than half of those surveyed expect silver prices to fall further in the next six months. Sixteen percent identified commodities as one of the markets that will suffer the worst returns over the next year, more than double the proportion that said that in January.

Still No. 1

Commodities have “become a bubble, with a lot of non- specialist investors,” said Ken Welby, a salesman at KNG Securities LLP in London and a poll participant. “Demand cannot cope with the price rises that we have seen.”

While the attractiveness of the U.S. is ebbing, it still comes out on top when survey participants are asked to name the best countries to invest in. Thirty-one percent cited the U.S. as among the markets that will offer the best returns over the next year, down from 37 percent in January.

U.S. investors are more enthusiastic about their country than those in either Europe or Asia. Almost 2 in 5 Americans picked the U.S. as a top market. Only one-third of Asians and less than a quarter of Europeans felt that way.

Brazil and China trailed the U.S. in the poll, with 1 in 4 investors citing those countries as good places to put money. Fifteen percent singled out Japan, almost double the amount that did so in January, before the country suffered a devastating earthquake and tsunami that left 24,837 dead or missing as of May 7 and cratered its stock market.

Nikkei Seen Rising

“We have confidence that the Japanese are addressing the issues, and that earnings will not disappoint the market,” Welby said. “I see it as a relative-value trade.”

More than 2 in 5 investors see Japan’s Nikkei 225 Stock Average rising over the next six months. That compares with about 1 in 4 who said that back in January.

The Nikkei average yesterday rose 45.50, or 0.5 percent, to 9,864.26. That’s down from 10,254.43 on March 11, the day of the earthquake. The gauge dropped 1.5 percent today.

Investors have turned less optimistic about other stock markets. Less than half see the Standard & Poor’s 500 Index rising during the next six months; in January, almost two-thirds forecast an advance. About one-quarter in the latest poll say they expect the stock gauge to fall. The S&P 500 fell 1.1 percent to 1,342.08 yesterday in New York.

Energy, Food

“U.S. stocks will have a 5 to 8 percent decline in the coming months,” said Joe Larizza, a director at Vining Sparks IBG in Memphis, Tennessee, and a poll participant. “I see energy and food prices causing a drag on the economy.”

Global investors still consider equities to be among the most lucrative places for their money, with more than 1 in 3 forecasting that stocks will provide superior returns over the next year.

Asian investors are the most confident in their regional economy, with 42 percent saying it is improving, compared with 31 percent of U.S. poll respondents and 26 percent of Europeans who feel that way about their areas.

Half of global investors forecast that the MSCI Asia Pacific Index will rise over the next six months, down from 58 percent in January. The index fell 1.6 percent to 136.23 today.

EU Returns

The European Union was seen by the most respondents as one of the markets offering the worst returns over the next year, with 38 percent singling it out, little changed from January. The turmoil-racked Middle East ranked second worst, with about 1 in 4 investors describing it that way, up from less than 1 in 10 in the previous poll.

About 1 in 3 investors see the Euro Stoxx 50 Index, a measure of shares in nations using the common currency, and the FTSE 100 Index rising in the next six months. That compares with more than 40 percent who forecast advances in January.

The Euro Stoxx 50 Index fell 1.3 percent to 2,903.39 today. The U.K.’s FTSE 100 Index dropped 1 percent to 5,916.64.

More than half of those surveyed forecast that the dollar will strengthen against the euro over the next three months. The euro was little changed at $1.4202 today.

The quarterly Bloomberg Global Poll of investors, traders and analysts was conducted by Selzer & Co., a Des Moines, Iowa- based firm. It has a margin of error of plus or minus 2.8 percentage points.

--Editors: Mark McQuillan, Robin Meszoly

To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Asian Stocks Drop as Commodities Tumble Amid Inflation Concern

May 12, 2011, 7:11 AM EDT By Shani Raja

May 12 (Bloomberg) -- Asian stocks fell, with the key regional index set for its biggest slide since markets crashed in the wake of Japan’s record earthquake in March, as commodity prices tumbled amid concern that China will further tighten monetary policy.

BHP Billiton Ltd., the world’s largest mining company, dropped 2.6 percent in Sydney after oil and metal prices sank yesterday in New York. Jiangxi Copper Co., China’s No. 1 producer of the metal, declined 2.2 percent in Hong Kong. Korea Zinc Co. slid 5.7 percent in Seoul, while Mitsubishi Corp., Japan’s biggest commodities trader, fell 2 percent. Olympus Corp., an optical-equipment maker, lost 5.6 percent in Tokyo after reporting an 85 percent slump in profit.

The MSCI Asia Pacific Index declined 1.6 percent to 136.14 as of 7:44 p.m. in Tokyo after commodity prices tumbled yesterday as China reported faster-than-estimated inflation and as the U.S. Federal Reserve gets closer to ending a $600 billion asset-purchase program, known as quantitative easing, in June.

“Markets always struggle with tightening cycles,” said James Holt, Sydney-based director of BlackRock Investment Management (Australia) Ltd., which oversees about $40 billion in assets. “The China inflation data yesterday shows that the country will need to do more tightening. This comes at the same time as investors pre-empt the end of the second round of quantitative easing, which has pumped up asset and commodity markets.”

Nikkei, Kospi

The gauge is headed for its steepest drop since March 15, when it fell 5 percent as Japanese stocks plunged amid a nuclear crisis triggered by a magnitude-9 earthquake and ensuing tsunami on March 11.

Japan’s Nikkei 225 Stock Average fell 1.5 percent and South Korea’s Kospi Index lost 2 percent. Hong Kong’s Hang Seng Index retreated 0.9 percent. Australia’s S&P/ASX 200 Index decreased 1.8 percent on a day the statistics bureau reported that the nation’s employers unexpectedly cut workers in April by the most since 2009.

Futures on the Standard & Poor’s 500 Index lost 0.6 percent today. In New York yesterday, the index slumped 1.1 percent, its biggest decline since March 16.

The MSCI Asia Pacific Index rose 0.5 percent this year through yesterday, compared with gains of 6.7 percent by the S&P 500 and 2.9 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 13.6 times estimated earnings on average at yesterday’s close, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.

BHP, Korea Zinc

The Asia-Pacific gauge has risen close to 5 percent and commodity prices have surged since Nov. 3 when a U.S. plan to buy Treasuries was unveiled. The Fed said last month it won’t need to extend the $600 billion program beyond its scheduled end next month.

BHP Billiton, also Australia’s No. 1 oil producer, lost 2.6 percent to A$44.13 in Sydney, while Rio Tinto Group, the world’s No. 2 mining company by sales, retreated 2 percent to A$79.79. Jiangxi Copper slumped 2.2 percent to HK$24.10 in Hong Kong.

Korea Zinc slid 5.7 percent to 367,500 won in Seoul and Mitsubishi Corp. declined 2 percent to 2,112 yen in Tokyo.

China Growth Risk

“The volatility in commodity prices and concerns about future policy direction in China have increased investor uncertainty,” said Tim Schroeders, Melbourne-based manager at Pengana Capital Ltd., which oversees about $1 billion. “Any perception that risks to the Chinese growth story are increasing will see investors react swiftly to adjust.”

Material and energy stocks led today’s declines after crude oil for June delivery plunged 5.5 percent to settle at $98.21 a barrel yesterday in New York. Copper fell to the lowest price in five months after China reported inflation remains above the government’s target, signaling further monetary-policy tightening that may curb metal demand.

The London Metal Exchange Index of six metals including copper and aluminum lost 1.9 percent yesterday, its first drop in four days.

“The inflation concern is causing investors to avoid risk assets,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “That is the underlying reason for a slump in the commodity market.”

Consumer Prices

Consumer prices in China rose 5.3 percent from a year earlier and banks extended 740 billion yuan ($114 billion) of local-currency loans, according to reports yesterday from the statistics bureau and central bank.

Inflation is “the most pressing problem” facing the world’s second-biggest economy, Vice Premier Wang Qishan said this week. Monetary policy will remain “prudent” and focus on removing “inflationary monetary elements,” Chinese officials said in a statement in Washington after talks with the U.S.

Oil refiners dropped today after gasoline prices yesterday sank the most since February 2009 in New York. S-Oil Corp. slumped 6.3 percent to 134,000 won in Seoul, while SK Innovation Co. fell 4.7 percent to 215,500 won. In Sydney, Caltex Australia Ltd., Australia’s largest oil refiner, slid 1.3 percent to A$14.35.

Olympus dropped 5.6 percent to 2,281 yen in Tokyo. The company said full-year net income tumbled 85 percent to 7.38 billion yen as sales fell and did not disclose a profit forecast for this year.

Also in Tokyo, Citizen Holdings Co. decreased 7.3 percent to 459 yen. The watchmaker booked 5.12 billion yen ($63 million) in net income for the year ended March 31, missing its forecast by 27 percent.

--With assistance from Norie Kuboyama and Toshiro Hasegawa in Tokyo. Editor: John McCluskey, Nick Gentle.

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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