The biggest two-day rally in commodities since December pushed raw materials past stocks, bonds and the dollar for a second month, after Egyptian riots drove oil, wheat and rice higher. The S&P GSCI Total Return Index of 24 raw materials gained 3.1 percent in January and rose for a fifth month, the longest streak since 2004, according to data compiled by Bloomberg. The MSCI All-Country World Index of equities climbed 1.6 percent including dividends. The U.S. Dollar Index, a gauge of the currency against six counterparts, fell 1.6 percent. The Global Broad Market Index for corporate and government bonds lost 0.2 percent as of Jan. 28, Bank of America Merrill Lynch data show. Commodities have beaten stocks for three months, the longest stretch since June 2008, after the Federal Reserve pledged to buy $600 billion of Treasuries and demand for clothes and food lifted cotton, cocoa and copper. Equities were poised to break the streak until Jan. 28, when concern Egyptian President Hosni Mubarak will be ousted sent the MSCI gauge to its biggest retreat since November and boosted food and fuel. “There are supply-side issues that have really kicked up the price of a lot of commodities,” said Walter “Bucky” Hellwig, who oversees $17 billion at BB&T Wealth Management in Birmingham, Alabama. “Rising prices have really hit people in countries where food makes up a larger part of their income. We’re seeing this play out in North Africa right now, where food prices have become a tinder box.” Global Economy Stocks rose for a second month and raw materials for a fifth after the Washington-based International Monetary Fund raised its forecast for 2011 global economic growth on Jan. 25, saying the world economy will expand 4.4 percent, more than the 4.2 percent estimated in October. U.S. gross domestic product increased last quarter at a 3.2 percent annual pace, up from 2.6 percent in the previous three months, as consumer spending climbed the most in more than four years. Cotton jumped 16 percent in January, the most among the 24 commodities in the S&P GSCI measure and the biggest rally for the month since at least 1960, Bloomberg data show. The price more than doubled in the past year and reached a record $1.7283 a bushel on Jan. 27 as growers struggled to meet demand in China, the world’s biggest consumer. Inventories monitored by ICE Futures U.S. tumbled 87 percent since June 1. Crop Futures Rice, wheat, corn and soybean futures gained in Chicago on speculation governments in emerging economies will boost imports after soaring food prices spurred protests in Egypt, Tunisia, Algeria and Yemen. The unrest may worsen because grain hoarding “will intensify,” according to a report yesterday from New York-based Goldman Sachs Group Inc. Cocoa surged 10 percent, the most since September 2009, on signs supplies will be disrupted from the Ivory Coast, the world’s biggest grower. Egypt’s new Vice President Omar Suleiman reached out to opposition parties yesterday to end protests as demonstrators urged a million people to take to the streets. Forty people were killed and 1,100 injured in clashes, the country’s Health Ministry said yesterday. Wheat reserves are adequate until the end of June, Al Arabiya television reported today. Gold futures surged 1.7 percent on Jan. 28, the most in 12 weeks, trimming monthly declines after turmoil in North Africa boosted investor demand for a haven. Its 6.1 percent drop in January marked the worst start to a year since 1991 amid faster U.S. growth. Oil for March delivery gained 0.9 percent in January after rallying 7.6 percent on the last days of the month on concern shipments through the Suez Canal would be halted. Biggest Slump MSCI’s equity index for 45 developed and emerging countries slumped the most in more than two months on Jan. 28 and fell 1.6 percent including dividends for the month. The gauge returned 104 percent since March 9, 2009, through yesterday. “It’s healthy for the markets that there was some consolidation,” said Keith Wirtz, who oversees $18 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. “History would still suggest that when you have a strong January, it’s a good predictor of where the year will go. For 2011, stocks quite likely will do very well.” The direction of the equity index in January has matched its move for the full year 74 percent of the time, according to Bloomberg data dating back to 1988. In the 12 instances when it rallied, the gauge rose 15 percent during the full 12 months. Energy Rally Energy stocks gained the most out of 10 industries in the global index, adding 5 percent for the fifth straight monthly gain. Only consumer-staples and materials companies retreated in January, data compiled by Bloomberg show. Natural-gas futures touched the highest level in almost six months in January as cold weather boosted demand for the heating fuel in the U.S. “The economy is doing pretty good outside housing,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, who helps manage $240 billion. “I’ve been adamant that we won’t have a double-dip recession and that earnings will continue to surprise.” Alcoa Inc., the biggest U.S. aluminum maker, climbed 7.7 percent in January. The New York-based company posted profit excluding some items that beat the average analyst forecast on Jan. 10. Since then, companies in the world index have posted a 40 percent average earnings growth rate, with results beating estimates by 6.3 percent, data compiled by Bloomberg show. Krona Gains The U.S. Dollar Index lost 1.6 percent in January. The Swedish krona was the best-performing currency in January, gaining 4.1 percent against the dollar. The South African rand performed worst, losing 7.7 percent. In the U.S., Treasuries, the benchmarks for borrowing costs around the world, returned 0.2 percent in January, snapping three straight monthly losses, according to data compiled by Bank of America Merrill Lynch through Jan. 28. The gains compared with a 5.9 percent loss in 2010, Bank of America figures show. “Equities have performed very well, outperforming bonds,” said Christopher Sullivan, who oversees $1.7 billion as chief investment officer at United Nations Federal Credit Union in New York. “Corporate earnings have been strong and the general tone of the economy has been positive. People are generally more comfortable accepting risk from here because the underlying fundamentals in the U.S. are good and the expectation from continued corporate profitability are all still pretty good.” Monthly Gain Corporate bonds worldwide returned 0.07 percent last month through Jan. 28, following a 0.55 percent loss in December, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. A gain through yesterday would mark the first monthly advance since October. High-yield, high-risk, or junk, bonds returned 2.17 percent as of the end of last week, following a gain of 1.77 percent in December, according to the Bank of America Merrill Lynch Global High Yield Index, which returned 15.2 percent in 2010. Speculative-grade bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P. In Europe, finance ministers pledged Jan. 17 to strengthen the safety net for debt-strapped countries, examining ways to give the 750 billion-euro ($1 trillion) rescue fund more flexibility. Stocks in Greece, which sought a financial bailout last year, joined Spain and Italy in rallying at least 9.3 percent last month. They are all among the top 10 countries for January equity gains. Greek Bonds Greece also had the best-performing bonds among the 26 sovereign markets compiled by the European Federation of Financial Analysts Societies and Bloomberg, returning 3.8 percent in January. Portuguese bonds were the worst euro- denominated sovereign securities, losing 1.7 percent, the EFFAS data showed. U.K. gilts fell 1.9 percent on speculation accelerating inflation would force the Bank of England to increase interest rates. Bonds in Japan, the biggest debt market, lost 0.6 percent in January, based on the Bank of America data. They returned 2.4 percent in 2010 as the central bank cut its benchmark interest rate to “virtually zero.” “The European problem is not solved, but sentiment has definitely changed,” Sullivan said. “More people have come around to the view that Europe could muddle through from here, and may actually achieve real solutions in the intermediate term that preclude a deterioration in the continent’s economic outlook.” To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Millie Munshi in New York at mmunshi@bloomberg.net. To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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