Commodities beat stocks, bonds and the dollar for a fifth straight month, the longest stretch in at least 14 years, as demand for raw materials increases in expanding economies and the Federal Reserve promises to boost growth
Commodities beat stocks, bonds and the dollar for a fifth straight month, the longest stretch in at least 14 years, as demand for raw materials increases in expanding economies and the Federal Reserve promises to boost growth.
The Standard & Poor's GSCI Total Return Index of 24 commodities climbed 4.4% last month, after reaching the highest level since October 2008. The MSCI All-Country World Index of equities advanced 3.9%, the most since December, and the U.S. Dollar Index, a gauge against six counterparts, fell 3.9%, touching a 33-month low.
Bonds of all types returned 0.9% on average, based on Bank of America Merrill Lynch's Global Broad Market Index.
Fed Chairman Ben S. Bernanke signaled that he will keep pumping record amounts of money into the world's largest economy and reiterated a pledge first made two years ago to keep interest rates “exceptionally low.” The United States, the biggest oil consumer, will expand 3.2% this quarter, from 1.8% in the first quarter, and will accelerate through the end of the year, according to the median of 73 economists' estimates compiled by Bloomberg.
“We're in a risk-on mode being helped by Bernanke,” said Arjuna Mahendran, the head of investment strategy for Asia at HSBC Private Bank, part of Europe's largest bank by market value. The stimulus means “big walls of money going into commodities, stocks and emerging markets,” he said.
The S&P GSCI Total Return Index rallied for an eighth month, the longest winning streak since 2004, when growth in the U.S. economy drove demand for raw materials. Silver, coffee, cocoa and gasoline led the gains in percentage terms in April.
OIL, GOLD AND SILVER
Crude oil, which represents more than half the index, is expected to stay above $100 a barrel amid concern that unrest across northern Africa and the Middle East would disrupt supplies. Libyan output sank to 390,000 barrels a day in March, from 1.39 million in February, according to Bloomberg estimates.
It did see a 1.5% drop last Monday — the biggest decline in two weeks — after President Barack Obama said that al-Qaeda leader Osama bin Laden had been killed, boosting expectations that risks of supply disruptions in the Middle East will ease. And by midweek, it had dropped further on lower demand from a slowing U.S. economy. Prices are still up 32% from a year ago, however.
Gold and silver reached records in April as investors sought to hedge financial assets against a weakening dollar and accelerating inflation. Gold advanced 32% over the past 12 months and is set for its 11th annual gain, while silver more than doubled as investors increased their holdings in exchange-traded products to a record 15,518 metric tons as of April 26.
Consumer prices in China, the biggest user of everything from copper to iron ore, gained 5.4% in March, the most since 2008, while the cost of living in the United States rose at its fastest pace since December 2009 in the 12-month period ended in March.
Silver had its biggest intraday drop since October 2008 after CME Group Inc. increased futures margins. Cotton futures plunged 21% last month, also the most since October 2008.
“The key reason commodities outperformed stocks and bonds is the weak dollar,” said Evan Smith, who helps manage $1 billion at U.S. Global Investors Inc. “Commodities will continue to outperform stocks and bonds.”
The Dollar Index had its worst month since September, and the currency weakened against all 16 of its major peers. The New Zealand dollar appreciated 6.3%, the euro 4.6% and the Japanese yen 2.3%, the data show.
Mr. Bernanke said April 27 that the end of the Fed's $600 billion bond-buying program next month probably won't have a significant effect on financial markets or the economy, and the central bank will likely continue reinvesting proceeds from maturing debt after that.
“He's remarkably dovish, dismissing inflation,” said Anthony Valeri, a market strategist at LPL Financial LLC, which manages $293 billion. “It does keep pressure on the dollar.”
The Fed's program to bolster the economy, which has been in place since the 2008 financial crisis, contrasts with that of China, which raised borrowing costs four times since October and increased reserve requirements 10 times since the start of last year to tame the fastest inflation since 2008.
Bonds worldwide returned the most since August, according to Bank of America Merrill Lynch indexes. Within that market, corporate bonds handed investors 1.3% and government debt returned 0.8%, the gauges show.
GOLDMAN, DOW CHEMICAL
The MSCI All-Country World Index reached 356.9 points April 29, extending this year's gain to 7.9%. The S&P 500 advanced 2.9% last month, the Stoxx Europe 600 Index 2.9% and the MSCI Asia Pacific Index 2.7%.
Stocks worldwide added $2 trillion of market capitalization last month, the most since December.
Companies from Dow Chemical Co. to Ford Motor Co. to The Goldman Sachs Group Inc. beat estimates in the earnings season that began April 11, when Alcoa Inc. reported a return to profit. Of the 298 members of the S&P 500 that have reported since then, 76% exceeded expectations.
Profit growth “bolstered investors' appetite for taking on additional risk,” said Chad Morganlander, a money manager at Stifel Nicolaus & Co., which oversees $110 billion in assets. “Over the next several months, the economic numbers, as well as the credit markets, will continue to show a favorable trend, which will entice investors,” he said.
The Thomson Reuters/University of Michigan index of U.S. consumer confidence rose to 69.8 last month from the lowest level in more than a year. Payrolls expanded for six consecutive months, and the unemployment rate dropped for four months, government data show.
