The combination of a record cotton crop and falling consumption will expand global stockpiles by the most since 2005, driving further declines in the price of this year’s worst-performing commodity.
Harvests will increase 7.5 percent to 123.89 million 480- pound bales (27 million metric tons) in the 12 months ending in July, as demand drops to a three-year low of 114.27 million bales, the U.S. Department of Agriculture estimates. Prices may decline 15 percent to 77 cents a pound on ICE Futures U.S. in New York by the end of next year, from 90.91 cents now, based on the median of 12 analyst estimates compiled by Bloomberg.
“It’s a double whammy,” said James Dailey, who manages $215 million of assets at TEAM Financial Management LLC in Harrisburg, Pennsylvania. “Cotton is facing the worst-case nightmare for a commodity, where you have a glut in physical production combined with weakening demand.”
Cotton fell 58 percent since reaching an all-time high of $2.197 in March as investors bet that prices would curb demand and encourage supply. Output is rising from Australia to China to India, more than compensating for a U.S. decline caused by the worst crop conditions since the dust bowl era of the 1930s. Speculators in U.S. futures are now the least bullish in 2-1/2 years, Commodity Futures Trading Commission data show.
Economic growth is forecast by the International Monetary Fund to slow next year from Europe to China to the Middle East, potentially curbing the consumption of commodities. Clothing manufacturers including Levi Strauss & Co. are already starting to cut prices to stimulate demand.
.....................................................................................
U.S. Manufacturing Likely Grew at Faster Pace
Manufacturing in the U.S. probably grew in November at the fastest pace in five months, showing factories will keep supporting the economic expansion through the end of the year, economists said before a report today.
The Institute for Supply Management’s factory index rose to 51.8 last month from 50.8 in October, economists surveyed by Bloomberg News forecast the Tempe, Arizona-based group’s data showed today. Fifty is the dividing line between growth and contraction. Jobless claims fell last week and construction spending increased in October, other data may show.
Corporate investment on new equipment, export demand, stronger consumer purchases during the holidays and leaner inventories lay the groundwork for a pickup in production. At the same time, risk of recession in Europe may restrain U.S. manufacturing, the industry that spurred the recovery.
.....................................................................................
U.S. Jobless Claims Unexpectedly Rise
More Americans than forecast filed applications for unemployment benefits during the holiday- shortened week, signaling limited recovery in the labor market.
Jobless claims climbed by 6,000 to 402,000 in the week ended Nov. 26 that included the Thanksgiving holiday, Labor Department figures showed today in Washington. The median forecast of 43 economists in a Bloomberg News survey called for a drop to 390,000. The number of people on unemployment benefit rolls and those getting extended payments increased.
Some companies are still trimming staff and others are reluctant to add workers until demand picks up and there’s more clarity on tax breaks due to expire at year-end. Faster hiring is needed to spur consumer spending, which accounts for about 70 percent of the economy, and reduce a jobless rate stuck near 9 percent that’s a concern for Federal Reserve officials.
.......................................................
Dollar Proves Best Bet for Investors
The dollar (DXY) was the best place for investors to be in November, beating returns on worldwide bonds, commodities and stocks as Europe’s debt crisis threatened to derail global growth.
The Dollar Index tracking the U.S. currency against six foreign-exchange peers rose 2.9 percent last month, leaving it down less than 1 percent for the year. Even as Treasuries gained 0.7 percent, fixed-income securities around the world lost 0.5 percent, Bank of America Merrill Lynch index data show. The Standard & Poor’s GSCI Total Return Index of commodities rose 1.4 percent, and the MSCI All Country World Index (MXWD) of shares fell 2.9 percent with dividends.
“There’s been a flight to quality, which means investors are keeping their money in U.S. dollars and Treasuries,” said Sean Callow, a Sydney-based senior currency strategist at Westpac Banking Corp., the second-most-accurate foreign-exchange forecaster measured by Bloomberg News. “The U.S. hasn’t been a bad bet, whether you’re on the safe-haven side or you see signs of life in the economy,” he said in a phone interview Nov. 29.
....................................................................
China’s Manufacturing at Weakest Since 2009 Augurs Further Easing: Economy
China’s manufacturing recorded the weakest performance since the global recession eased in 2009, underscoring the case for monetary stimulus as Europe’s crisis weighs on the world’s second-largest economy.
A purchasing managers’ index compiled by the China Federation of Logistics and Purchasing slid to 49 in November, lower than all but two of 18 forecasts in a Bloomberg News survey. Readings below 50 signal a contraction. Separate reports showed slowing retail sales and an industrial slump in Australia, which relies on China as its biggest export customer.
Premier Wen Jiabao is shifting policy gears as Europe’s woes combine with a domestic real-estate slowdown to impair the outlook for growth, with China’s central bank yesterday lowering lenders’ reserve ratios. Asian nations from China to India to South Korea will cut key interest rates next year as the global economy deteriorates, Goldman Sachs Group Inc. (GS) predicted today.
“China’s economy will slow sharply in coming months,’ said Zhang Zhiwei, chief China economist at Nomura International Hong Kong Ltd., who correctly predicted the PMI reading. Zhang said growth may slow to less than 8 percent and forecast another reserve-ratio cut in January, with stronger policy steps likely if Europe’s crisis worsens.
A separate PMI released by HSBC Holdings Plc (HSBA) and Markit Economics slid to 47.7, the lowest level since March 2009.
‘‘An across-the-board policy easing” may come as early as year-end as inflation cools, said Qu Hongbin, an economist at HSBC in Hong Kong. The economy can grow more than 8 percent next year after a 10.4 percent expansion last year, he said
....................................................................
Fed Dollar-Funding Cut Shows Limits of Action
The Federal Reserve-led global effort to ease borrowing costs for financial firms shows both the central bank’s power to jolt markets -- and the limits of its ability to alleviate the European debt crisis.
Stocks rallied worldwide, commodities rose and yields on most European debt fell after the Fed and five other central banks yesterday cut the cost of emergency dollar loans to banks outside the U.S. At the same time, the action falls short of more-drastic moves that central banks are reluctant to take, including purchases or guarantees of countries’ bonds.
Fed Chairman Ben S. Bernanke and his counterparts are revisiting their playbook from the U.S. housing-induced financial crisis that started in 2007 to cushion markets and economies from Europe’s fiscal turmoil today. Yesterday’s move deals with the consequences of the crisis without addressing the causes, said John Ryding, chief economist at RDQ Economics LLC.
................................................................
