05 January 2009

JP Morgan's Forecast of Commodity Price Changes From Index Rebalancing

You may click on the link as usual for the full story and a detailed breakdown of the analysis.

In summary JP Morgan's forecast of the commodity index rebalancing which will done around January 8-9th is:

...we expect the rebalancing to have the greatest impact in gold, COMEX copper, crude oil, gold, and live cattle. We estimate that the rebalancing of the two indices is expected to result in $877 million of selling in gold, $699 million of buying in COMEX copper, $528 million of selling in live cattle, and $523 million of buying in crude oil.

We would expect the impact of the index rebalancing to be felt this week because of 'frontrunning' of the index changes by the big commodity trading desks. Indeed we may find that by the time the changes are realized, the impact may be significantly discounted.

Financial Times - Alphaville
Beware, commodity index rebalancing ahead
By Izabella Kaminska
Jan 05 15:34

The major commodity indices rebalance their respective asset weightings once a year (or occasionally more) — and with that comes a mass dose of buying and selling. The 2009 rebalancing is expected to start sometime this week.

Luckily, JP Morgan has produced its best guess of how the 2009 reweightings of the DJ AIGCI and the S&P GSCI indices will impact the market.

The weightings for both indices are released ahead of time, but begin to kick in the first few working days of the new year. In the case of the DJ-AIGCI — which JP Morgan estimates has $25bn in funds tracking it — the new weightings come into force during the roll period that begins January 9th. The S&P GSCI index weightings kick-in after its January roll which commences January 8th. JP Morgan estimates about $50 bn of investment into that index...