Brazil Stocks Gain as Economic Growth Boosts Commodity Outlook

Dec. 9 (Bloomberg) -- Brazilian stocks rebounded, led by commodity producers, on speculation a growing economy will sustain demand for raw materials.

Usinas Siderurgicas de Minas Gerais SA paced gains for steelmakers after Brazil’s gross domestic product unexpectedly jumped 6.8 percent in the third quarter. Petroleo Brasileiro SA rose 3.3 percent after the company said it may be able to produce oil from its pre-salt fields for less than $40 a barrel. Positivo Informatica SA soared the most ever on speculation Dell Inc. and China’s Lenovo Group Ltd. may bid for the company.

The GDP number “reflects what we’ve been hearing from the companies, that, activity has slowed down but it hasn’t slowed down that much and some sectors haven’t slowed on at all,” said ,William Landers who manages $3 billion in Latin American equities at BlackRock Inc. in Plainsboro, New Jersey. “If you talk to the banks, they’re still lending; if you talk to the steel companies, they’re not shutting down completely; if you talk to the retailers, they’re still selling on credit.”

Brazil’s Bovespa Index rose for a third day, gaining 0.6 percent to 38,522.76 at 12:11 p.m. New York time. The index fell as much as 1.3 percent earlier. Mexico’s Bolsa climbed 1.4 percent and Chile’s Ipsa surged 1.8 percent.

Usiminas rose 4 percent to 26.65 reais.

Petrobras jumped 68 centavos to 20.89 reais.

“We’re optimistic that we can produce oil at a cost below $40 a barrel in pilot production in the pre-salt oil fields,” said Theodore M. Helms , investor relations executive manager, said during an investor conference in New York. The so-called pre-salt areas are underwater oil fields beneath a layer of salt.

Positivo rose 53 percent to 9.45 reias. It had gained as much as 126 percent earlier.

Lenovo Chief Executive Officer said today he expects personal-computer companies to consolidate “soon” because of the global slump in stock prices, adding to speculation that Lenovo may be interested in Positivo. Amelio said there is “no news to share on” the possible plans.

“Besides the fact Lenovo’s CEO said he sees more industry consolidation, the shares are really cheap now compared with the company’s prospects,” said , who manages the equivalent of $2.4 billion as head of equities at Unibanco Asset Management.

Gold ends higher, strong physical demand seen

NEW YORK/LONDON (Reuters) - Gold futures ended slightly higher on Tuesday as weaker stock markets bolstered bullion's appeal as an alternative investment.

"The gold market has been moving sideways, waiting for further development in the financial markets. As the stock market shows signs of prosperity, gold buyers will become more aggressive in returning," said George Nickas, commodity broker at FC Stone.

U.S. stocks turned lower sharply after rallying in the previous two sessions, as investors mulled whether recent gains have staying power. .N

Spot gold was at $773.25 at 2:42 p.m. EST, up 0.3 percent from Monday's close of $771.30.

U.S. gold for February delivery settled up $4.90 at $774.20 an ounce on the COMEX division of the New York Mercantile Exchange.

Gold held onto gains in spite of a sharp drop of oil, the other main external driver of gold. U.S. crude futures ended down nearly $2 at $42.07 per barrel.

Falling crude prices can undermine confidence in commodities as an asset class, and dent interest in gold as a hedge against oil-led inflation.

Meanwhile, market talk of a gold sale by the International Monetary Fund failed to dampen sentiment.

In April, the IMF had agreed to put its finances on sounder footing by selling some of its gold and investing in other asset classes such as bonds or equities.

However, approval of the U.S. Congress will be needed before any gold sales could begin.

PHYSICAL DEMAND SEEN SUPPORTIVE

In addition, resilient physical gold demand should boost prices in the near term, analysts said.

Thom Calandra, natural resources analyst and chief columnist for Stockhouse.com, said that high gold leasing rates and the lofty premium of gold coins and bars underscored strong physical buying.

"That demand is not currently reflected in the futures prices and other paper prices," Calandra said.

Among the other precious metals, platinum slipped a touch as investors worried slowing economic activity would hit demand for the metal, which is chiefly used to make catalytic converters.

Decline in Oil Markets Wallops ETFs That Bet on Energy Prices and Stocks

Exchange-traded funds that let investors bet on energy prices and stocks are among the most popular offerings, judging by their considerable trading activity, but some of these ETFs have been slammed by the steep declines in crude-oil prices.

"There simply is very little buying coming into the markets," said MF Global analyst Edward Meir. "With respect to crude, it is anyone's guess where we go from here."

PowerShares DB Crude Oil Double Long ETN, a exchange-traded note, shed more than half its value in the month ended Dec. 4, according to investment researcher Morningstar Inc. In three months ended Dec. 4, it was off more than 80%.

Oil Slick

Other ETFs and ETNs that give leveraged exposure to commodities and related stock sectors have taken similar hits from a correction in energy prices. The casualty list includes PowerShares DB Commodity Double Long ETN, ProShares Ultra Basic Materials and ProShares Ultra Oil & Gas.

While consumers have been benefiting from lower oil prices at the pump in the form of cheaper gasoline, U.S. Gasoline Fund is down more than 60% in the past three months.

Exchange-traded products linked to crude oil also have been caught in the center of the commodity storm, such as iPath S&P GSCI Crude Oil Total Return Index ETN, U.S. Oil Fund, U.S. 12 Month Oil Fund, MacroShares $100 Oil Up, PowerShares DB Crude Oil Long ETN and PowerShares DB Oil Fund.

Individuals have many choices when it comes to investing in the energy sector, and there are even offerings designed to bet against commodities.

Several products track energy stocks, such as the highly traded Oil Service HOLDRS. There also are portfolios designed to short, or bet against, oil and energy-sector stocks so investors can profit from market declines or to hedge other investments, and some of these bearish funds and notes provide leverage.

Check Under the Hood

Exchange-traded products have let individuals easily access commodities and other sectors without opening up a futures account, but investors should make sure to research them thoroughly before jumping in. For example, ETNs have come under pressure recently because they carry credit risk.

Also, some of the funds listed above use the futures markets to get exposure to oil and commodities prices. This is important because the oil markets are in a state known as "contango," in which longer-dated futures are more expensive than the spot price. Heavy contango may, at times, indicate a market perception of oversupply.

The bottom line is that funds that use futures need to continually rollover the contracts to maintain exposure. When markets are in contango, the funds post a loss on such trades.

This has been a source of confusion in recent years with the proliferation of ETFs and ETNs tracking oil and commodities.

Investors also need to be aware that gains on these products that invest in futures or hold physical commodities can be taxed at a higher rate than funds that invest in stocks.

Still, there is evidence that investors have been using the products to trade the volatility in oil markets this year.

Energy Select Sector SPDR Fund, ProShares UltraShort Oil & Gas and Oil Service HOLDRS were among the top 20 U.S.-listed ETFs by daily dollar volume in the third quarter, according to research from Morgan Stanley.

Oil and energy ETFs also had some of the highest levels of short interest relative to overall assets. Highlighting the scope of the action, many oil and energy-related funds can see their entire asset base turn over in a matter of days.

Will Higher Commodity Prices Help the Australian Dollar?

It seems logical to assume that increased demand in the US for commodities would be good for the Aussie but that may not actually turn out to be correct. The AUD/USD has popped up a little today as a result of the shift in investor sentiment but long term moves still look biased to the downside. Increased demand for commodities may seem good for the Australian dollar but will it really last? The Australian economy is more sensitive to Asia than it is to North America. This article will explain why.

Although the AUD is a commodity currency they export much more to China, Japan and even Korea than to the U.S. Economic improvements in Asia are likely to be needed for much improvement in the AUD over the long term.

With a new economic crisis brewing in China, demand is not likely to pick up in the near term. Additionally, from a technical perspective. the AUD/USD is still within its channeling range and a bounce back down from resistance would not be a surprise.

In today's video, I will walk through the variables at play including the technical pattern appearing on the AUD/USD itself. In previous articles, I have discussed the correlation that the Australian dollar has with specific commodities like gold.

European stocks rise sharply, led by commodities

FRANKFURT, Dec 8 (Reuters) - European shares soared 6.7 percent on Monday, led by commodities and banks, on optimism that government stimulus packages will help soften the impact of a recession.

The pan-European FTSEurofirst 300 .FTEU3 index unofficially closed up 53.32 points higher at 847.26, having extended gains after U.S. stock markets opened higher.

U.S. president-elect Barack Obama said on Saturday that his plan to create at least 2.5 million new jobs included the largest infrastructure investment since the 1950s and a huge effort to reduce U.S. government energy use.

Wall Street rallied on hopes for the plan, and major U.S. indexes were up between 3.6 and 3.7 percent as the European market closed.

Commodity stocks led the rally in Europe, tracking metal and crude prices, which rose sharply. The DJ Stoxx basic resources index was up 13.4 percent, with Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz), Vedanta Resources (VED.L: Quote, Profile, Research, Stock Buzz) and BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz) rising between 13.2 and 15.6 percent.

Heavily-weighted banks also advanced. Barclays (BARC.L: Quote, Profile, Research, Stock Buzz), Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz), Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) and UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) rose between 6.7 and 14.2 percent. (Reporting by Sarah Marsh, editing by Atul Prakash)

Australian, N.Z. Dollars Weaken as Stocks, Confidence Decline

Dec. 9 (Bloomberg) -- The Australian dollar fell from close to a three-week high as local stocks declined and an industry report showed business confidence was at a record low. New Zealand’s dollar also fell.

Australia’s currency pared yesterday’s gains before a government report this week that may show unemployment rose to a one-year high in November, adding to signs that the economy may slip into its first recession since 1991.

“There’s a view that some of the gains we’ve seen will be hard to sustain for stock markets,” said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. “You’d expect the Aussie, or the risk-sensitive currencies, to run into resistance at higher levels.”

Australia’s currency fell 1.4 percent to 65.50 U.S. cents as of 4:47 p.m. in Sydney from late in Asia yesterday, when it touched 66.91 cents, the highest level since Nov. 14. The currency declined 2.2 percent to 60.59 yen. The currency may weaken towards 65 U.S. cents before the employment data is released, said Morriss.

New Zealand’s dollar fell 0.8 percent to 53.85 U.S. cents, from 54.28 yesterday. It was weaker at 49.83 yen from 50.61 yen.

The Australian dollar declined as National Australia Bank Ltd. said its sentiment index for November fell one point to minus 30, the lowest level since the series began in 1989. The survey of more than 560 companies was conducted between Nov. 23 and Nov. 30.

Jobless Rate

The number of people employed in Australia may have fallen 15,000 in November, after gaining 34,300 the previous month, according to a Bloomberg News survey of economists before the statistics bureau’s Dec. 11 report. The unemployment rate may have climbed to 4.4 percent, the highest level since November 2007, from 4.3 percent, a separate Bloomberg survey showed.

The New Zealand dollar gained earlier as Governor-General Anand Satyanand announced NZ$4.4 billion ($2.4 billion) of income tax cuts and said it would spend more on road and school construction.

Government plans “that are going to build infrastructure and so need commodities have improved underlying sentiment toward these countries,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington.

The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials gained, ending six days of losses. Gold and crude oil, Australia’s third and fourth most valuable raw-material exports advanced. Raw materials account for 60 percent of Australia’s exports and 70 percent of New Zealand’s.

Australian government bonds were little changed with the 10- year yield at 4.31 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.140, or A$1.40 per A$1,000 face amount, at 107.692.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 4.78 percent from 4.75 yesterday.

FEATURE-Commodity traders grow weary of market swings

CHICAGO (Reuters) - From his desk alongside the Chicago Mercantile Exchange (nyse: CME - news - people ) trading floor, Jim Brooks is seeing more ill tempered cattle and hog traders nowadays as they cope with fast moving markets that has lost many of them money.
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"Tempers are a little shorter and emotions are more frantic. You definitely feel that," said Brooks, who oversees floor operations for R.J. O'Brien Futures. "This market is starting to take a toll on some people."

That toll has been caused by the whipsaw action in commodities, which had traders struggling to get on board when commodity prices shot higher this summer and later rushing to get out when prices tumbled.

Many lost money and others are still losing more. This has led to traders getting out or scaling down their trading practices. The larger players, primarily investment funds, may not be coming back.

"We drove a lot of people out of the market because they could not afford to play," Paul Haugens, vice president of the Chicago brokerage Newedge USA, said of this year's surge in Chicago Board of Trade grains market. "Now we are not getting them back. They are beat up."

This exodus has been evident in the sharp decline in the open interest, a measure of traders using the markets, on the exchanges across the board since the summer.
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Open interest is down 33 percent in CBOT grain markets and in CME live cattle and down 35 percent in CME hogs.

Open interest in crude oil is down 22 percent from May, while gold is down 42 percent and copper is down 31 percent in that time, according to Commodity Futures Trading Commission.

"I think the bulk of the open interest decline has been related to the exit of the index funds and hedge funds from the market," said Rich Feltes, senior vice president at MF Global.

COMMODITIES HEYDAY MAY BE OVER

A few months ago, commodities of all types were the darlings of these wealthy investment funds, which poured cash into crude oil, cattle, corn, copper, and others.

"They were like drunken sailors, they could not stand to have the money in their pockets," Gary Lark, a 30-year veteran of the Chicago Mercantile Exchange livestock markets, said of the rush to buy.

That heyday appears to be over.

"I don't think they are going to be coming back for a while," Feltes said of the funds, "I think they have been stung by the betrayal of the trading adage that commodities trade inversely proportional to equities."

This crash in commodities has sent smaller traders moving to the sidelines as well.

"I think everybody is totally shell-shocked," said Lark. "Everybody got run over by the bus going east. They got up only to be run over by the bus going west."

HOG TRADERS STILL CAUGHT

For instance in the CME's hog market, traders are still long the June 2009 hog contract, said Wilson Cipolla, a long-time hog trader with ADM Investor Services.

These traders bought on ideas the high feed grain prices early this year would have producers feeding fewer hogs thus driving up hog prices.

However, corn prices came crashing down a few months later amid forecasts for a bumper U.S. crop. Hog prices came down as well, stranding these traders with money-losing positions.

"There were an awful lot of sharp guys who bought June hogs figuring prices would go higher," said Cipolla. "It is a blood bath, they can't get out."

The June hogs peaked in July at 100.25 cents per lb, but on Monday was at 79.375, a 21 percent decline.

Similar tales can be found in the cattle pit, at the nearby Chicago grain markets, in Winnipeg where canola and barley are traded and in New York, where crude oil, gold, and other commodities trade.

"We have had just a massive meltdown here. Everybody got on the same side of the boat. Everybody was long and wrong," said Keith Ferley, a Winnipeg commodity broker for Union Securities. "I think we are at the point now where participants have moved to the sidelines in disbelief."

In New York, crude oil topped $140 a barrel in July as funds and speculators poured bought on the belief that demand by China and India would reduce supplies. However, souring economies worldwide and an aversion to $4 per gallon gas by U.S. motorists slashed demand, and crude came tumbling down to about $40.

"Given the rate at which we are selling off at, we shudder to think where crude oil prices will be when the boys from OPEC get together in 12 days' time ... an eternity in our view," MF Global analyst Edward Meir said last week when oil dropped 25 percent, its deepest weekly rout in 18 years.

The Organization of the Petroleum Exporting Countries is meeting in Algeria on Dec. 17. (Additional reporting by Barani Krishnan; Editing by Marguerita Choy)