Commodities rally on demand outlook as U.S. stocks advance, bonds retreat

Commodities rose for the first time this week amid signs of
increasing demand, helping energy and raw-material producers lead U.S. stocks
to their first gain in four days. Oil rallied following an unexpected drop in
supplies, while 10-year Treasury yields climbed from their 2011 low.

The Standard & Poor’s GSCI index of commodities climbed
2.6 percent, led by silver and wheat, at 11:40 a.m. in New York. The S&P
500 Index rose 0.4 percent, with Dell Inc. (DELL) surging 5.1 percent following
higher-than-estimated earnings. The pound weakened versus all 16 major peers
amid signs the Bank of England may refrain from interest-rate increases in the
near term. Ten-year yields rose three basis points to 3.15 percent.

Raw materials will extend their rebound from the record
plunge in 2008 as an advance in oil and gold helps to compensate for a retreat
in base metal prices, said Ray Eyles, chief executive officer of JPMorgan Chase
& Co.’s commodities business in Asia. U.S. crude supplies fell by 15,000
barrels last week, the Energy Department reported today, defying analysts’
average forecast of an increase of 1.7 million barrels.

“Commodity markets look bullish in the face of growing
demand in most of the world,” said John Kilduff, a partner at Again Capital
LLC, a New York-based hedge fund that focuses on energy. “Demand will pick up
during the second half of this year and next year. Buyers are waiting in the
wings, and will be for some time, waiting for dips.”

Commodity Rebound

The GSCI commodities index rebounded after falling 1.6
percent over the previous two days. Oil rose 2.8 percent to $99.62 a barrel and
gasoline climbed 0.8 percent to $2.9439 a gallon. Gasoline supplies last week
fell by 676,000 barrels, the American Petroleum Institute said yesterday. Wheat
rallied 4.5 percent, corn advanced 3.8 percent and cotton increased 3 percent
as U.S. dry weather may curb supplies.

Exxon Mobil Corp. rallied 1.6 percent to pace gains in all
41 energy companies in the S&P 500, while CF Industries Holdings Inc.
surged 3.7 percent to help lead raw-material producers higher.

The Stoxx Europe 600 Index climbed 0.3 percent, ending a
four-day slide. Rio Tinto Group advanced 1.7 percent, leading gains among
mining companies. Land Securities Group Plc (LAND), the U.K.’s largest
real-estate investment trust, surged 6.3 percent, the most in almost two years,
as profit topped estimates. Rivals British Land Co. and Hammerson Plc jumped
more than 3.2 percent.

The MSCI Emerging Markets Index added 1 percent, set for its
steepest gain since April 21, after yesterday closing at the lowest level since
March 23. Russia’s Micex Index jumped 1.1 percent and Poland’s WIG20 Index
rallied 1.1 percent, buoyed by higher oil and metals prices. South Korea’s
Kospi Index (KOSPI) jumped 1.6 percent as carmakers surged on speculation of
higher sales.

Pound Slumps

Declines in the pound were led by the South African rand and
New Zealand dollar, which gained 1 percent or more each versus the British
currency. Minutes from the Bank of England meeting this month showed policy
makers voted 6-3 to keep interest rates on hold this month as the majority
warned that tightening policy now could damp consumer spending.

The New Zealand dollar strengthened 0.3 percent against the
U.S. currency as reports showed producer prices and consumer confidence in the
nation increased. Sweden’s krona appreciated versus its most-traded
counterparts after the National Debt Office said that the country will have a
larger budget surplus than previously forecast this year because of state-asset
sales and as the economy continues to recover.