Traders bet on continuing stock market rally

Traders bet on continuing stock market rally
The recent stock market rally could continue this week, as traders increase their bullish positions in a wide range of asset classes.

By Garry White
Published: 11:07PM BST 02 Aug 2009

The FTSE 100 had its best month in more than six years in July, boosted by a number of better-than-expected corporate earnings releases and hopes that the worst of the recession was now over. Derivatives traders are now betting that improving conditions would result in further price rises in metals and soft commodities.

Commodity prices have risen sharply this month after economic data improved and the dollar slid to its lowest level in 2009 – and further rises are now expected.


Related Articles
FTSE 100 closes at year high
FTSE 100 hits new high for year
Commodity prices set to rise further, Roubini says

The copper price, which is seen as a leading indicator of future economic growth, rose for a seventh-straight month over the course of July. Aluminium prices put in their highest monthly gain since 1988.

The FTSE 100 is heavily exposed to mining and oil groups, with about 30pc of its weighting made up by global commodity plays such as BHP Billiton, BP and Fresnillo.

Last week, earnings reports from the likes of AstraZeneca, Pearson and Cadburys pleased as cost-cutting measures made businesses leaner and positioned them well for an economic upturn.

There is the potential for any rally to derail, however, as earnings are released this week by the major UK banks and insurers.

However, US derivative traders and hedge funds have bet that the recent rally in many asset classes will continue, data from the US Commodity Futures Trading Commission (CFTC) reveal.

In the week to July 28, traders increased bets that the price of a wide range of commodities will continue to rise. When more traders are using futures contracts to bet on a price rise than on a price fall a so-called "net long" position is created.

Last week an increase in the net long position was seen in a wide range of contracts, including crude oil, heating oil, platinum, orange juice, cocoa, sugar, corn, hogs, soymeal, cattle and silver, while the net short position in copper, which means more traders expect a fall in prices than expect a rise, was reduced. Bets on a rise in the cotton and gold price fell slightly.

The data was compiled before Friday's positive reading on US second-quarter GDP, which fell 1pc year-on-year compared with expectations of a 1.5pc fall.

"The outlook for base metal prices is growing more positive," says Gayle Berry, an analyst at Barclays Capital. However, she thinks that Chinese buying of copper is likely to moderate in the second half of the year, after the country's imports doubled in the first half.

The FTSE 100 index of leading shares climbed 8.5pc in July, adding £134bn to the value of the stock market.

http://www.telegraph.co.uk/finance/markets/5961931/Traders-bet-on-continuing-stock-market-rally.html