Bloomberg News

Commodities Fall for Second Session on European Bailout Concerns

November 01, 2011

Oct. 31 (Bloomberg) -- Commodities fell for the second straight session on concern that European leaders will struggle to contain the region’s debt crisis, eroding prospects for the global economy and raw-material demand.

The Standard & Poor’s GSCI index of 24 energy, metal and agriculture prices fell 0.7 percent to 647.96 at 3:49 p.m. in New York. Coffee, silver and wheat led the decline. The dollar jumped the most since 2008 against a basket of major currencies, eroding the appeal of commodities and the outlook for U.S. exports.

The MSCI All-Country World Index of equities fell 2.8 percent, the most in five weeks. European leaders last week pledged to increase the region’s rescue fund to 1 trillion euros ($1.4 trillion). Officials will meet early next month to seek financial support for the accord. The lack of details in the European plan disappointed investors, said Matthew Zeman, a strategist at Kingsview Financial in Chicago.

“It’s concerns over the European sovereign crisis, and it’s causing selling of all risk assets and deleveraging of investor portfolios,” Nic Johnson, who helps manage about $30 billion in commodities at Pacific Investment Management Co. in Newport Beach, California, said in a telephone interview. Investors “realize there’s a lot of implementation still involved,” he said.

No ‘Savior’

European leaders have sought help for their rescue fund from China and cooperation from the International Monetary Fund. Xinhua, China’s official news agency, said the country can’t play the role of “savior” for Europe or provide a “cure” for the region.

“You have that uncertainty on Europe rearing its ugly head again,” Kingsview’s Zeman said in a telephone interview. “You have people exiting higher-risk assets. When in doubt, people are going to hit that ‘sell’ button and go to safety.”

Benchmark equity indexes declined in all 18 western European markets.

MF Global Holdings Ltd. filed for bankruptcy after making bets on European sovereign debt. The futures broker run by Jon Corzine has been stopped from doing new business with the Federal Reserve Bank of New York after a record loss.

The broker of commodities, derivatives, equity and foreign exchange had $7.2 billion of customer funds in segregated accounts as of Aug. 31, according to the Commodity Futures Trading Commission. It was one of 22 primary dealers authorized to trade U.S. government securities with the Federal Reserve Bank of New York and is a member of more than 70 financial exchanges, according to its website.

‘Anxiety’

“It’s plausible to think some people who have business with MF may be stuck and can’t conduct transactions,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, said in a telephone interview. “That might be raising their anxiety and require them to sell somewhere else.”

The greenback climbed after Japan moved to weaken the yen. The country’s finance minister said the government acted after the currency climbed to a post-World War II high against the dollar.

Coffee, Wheat

Arabica coffee for December delivery fell 3.5 percent to $2.2695 a pound on ICE Futures U.S. in New York after touching a two-week low. Silver dropped 2.6 percent on the Comex in New York, the most in more than a week.

Wheat futures for December delivery tumbled 2.5 percent to $6.2825 a bushel on the Chicago Board of Trade. Cotton prices for December delivery slid 2 percent to $1.0229 a pound on ICE.

Only hogs, zinc and natural gas posted gains among GSCI components.

Last week, the GSCI gauge jumped 3.5 percent after European leaders announced their bailout plan with base metals and natural gas posting the biggest gains.

“The bottom line is these markets went up way too quickly,” Michael Smith, the president of T&K Futures and Options Inc. in Port St. Lucie, Florida, said in a telephone interview. “There was irrational exuberance.”

--With assistance from Matthew Leising in New York. Editors: Patrick McKiernan, Daniel Enoch

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

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


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