Head of Commodity Strategy
Summary: Futures positions held and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, February 23. A week that saw growing unease across markets as bond yields continued to rise. A continued rally in commodities attracted profit taking from funds in both energy and metals while they added further length to an already record agriculture long.
Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, February 23. A week that saw emerging unease about the continued rise in bond yields that culminated last Thursday, two days after data for this report was compiled. Before then, the S&P 500 dropped 1.3% while the technology heavy Nasdaq slumped by 4.2%. The commodity sector managed another rise to a fresh 34-month high while the dollar traded softer before an end of week spike on emerging risk aversity.
Commodities
Ahead of the bond market turmoil last week, hedge funds had turned a bit more cautious on commodities. Despite seeing the Bloomberg Commodity index climb to a fresh 34-month high, the report shows that leveraged funds cut exposure to energy and metals. Overall however, the combined net long across 24 major commodity futures was unchanged at a record 2.7 million lots, representing a nominal value of $144.4 billion. This due to continued demand across the agriculture sector where the combined net long reached a fresh record at 1.3 million lots. The buying was led by sugar, coffee and soybeans on weather worries in Brazil.
Most noticeable change considering the continued rally was in HG copper where speculators, despite seeing the metal rally 9%, cut their exposure by 19% to a 20-week low.
Energy: Emerging risk aversity despite strong price action was seen across the energy sector where all but one saw small net reductions. The combined crude oil long was reduced by 1.7k lots from a 2-1/2-year high to 736k lots.
Metals: Speculators reduced bullish copper bets while the price continued to surge higher to reach the highest level since 2011. The 19% reduction in the net-long to a 20-week low was primarily driven by longs being reduced with no sign of fresh short selling. Gold held steady at 83k lots, a 21-month low while both silver and platinum saw reductions.
Agriculture: The combined long across the six grain and oilseed contracts rose by 10k lots to 796k lots, a seven-week high. Biggest moves in soybeans (+11k), wheat (+6k) and corn (-5k). All the four softs contracts saw strong buying led by sugar by sugar (+21k lots to 219k), Arabica coffee (+14k to 35k, a 22-week high), cocoa (+1k to 16k) and cotton (+4k to 72.4k and highest since August 2018).
Forex
In FX, speculative flows were very modest for a second week as dollar stayed range-bound before its end of week jump as rising bond and stock market volatility helped attract safe-haven and short covering. In the week to February, however, the overall dollar short ten IMM currency futures and the Dollar Index saw a small increase to $31.4 billion with buying of CHF and especially GBP being off-set by EUR and accelerated JPY selling.
Financials
Speculators maintained their Cboe VIX futures short at a 12 month high at 163k lots, just days before jumping on rising yields and lower stocks unease.
The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.
Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)
The reasons why we focus primarily on the behavior of the highlighted groups are:
The end of the road
Emboldened by surging crude oil prices, Saudi Arabia makes waves on the international stage, as Crown Prince Mohammed bin Salman manages to create a World Champions League, after buying the UEFA Champion League franchise.
As the world embraces GLP-1 obesity wonder drugs, the people next in line to get a prescription stop caring about dieting and exercising, figuring that the drug will later solve all of their weight-related health problems.
With the US budget deficit spiraling above 10% of the GDP, the government is desperate to foster demand for US Treasuries. Under intense pressure from the White House, Congress makes income from government bonds tax-free.
After a criminal group deploys the most deceptive AI deepfake ever seen, generative AI becomes a national security threat. With public distrust soaring, governments crack down with harsh new laws, puncturing the AI hype.
To fix the divergence in the global trade and financial system, the largest deficit countries unite to negotiate new world trade terms. For surplus countries, the reset of the global economic model is a painful adjustment.
As discontent with Biden and Trump rises to fever pitch, Robert F. Kennedy Jr sees his support rising inexorably in the polls. On November 5, Kennedy wins the US presidential election, ushering in a new era in US politics.
Stepping up Japan's economic transformation in 2024, PM Kishida brings in a host of populist policies to boost domestic demand. As the GDP growth rate hits 7%, the BoJ is forced to abandons its yield curve control policy.
As people wake up to how little tax Europe’s billionaires are actually paying, the EU Commission implements a wealth tax of 2%. The tax sends shockwaves through Europe's luxury industry, with luxury giant LVMH plunging 40%.
