Industrial metals prices weighed down by trade, demand fears

COT: Brent and grains sold; industrial-linked metals in demand

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Ole Hansen

Head of Commodity Strategy

Summary:  Futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, October 12. A week where stocks traded close to unchanged ahead of the start of the US earnings season while bond yields and the dollar both rose ahead of Wednesday's FOMC and CPI releases. Commodities generally traded softer after hitting a fresh multi-year high with selling concentrated in Brent, natural gas and grains.


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.

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, October 12. A week where stocks, despite concerns about inflation and supply disruptions, traded close to unchanged ahead of the start of the US earnings season. Bond yields and the dollar both rose ahead of Wednesday’s FOMC and CPI releases, while commodities generally traded softer due to losses in natural gas and grains.

Commodities

Speculators navigating an increasingly volatile commodity sector turned net sellers for the first time in three weeks after the Bloomberg Commodity Index suffered a temporary setback after hitting a fresh multi-year high. During the week strong gains in crude oil, fuel products and industrial-linked metals were offset by heavy selling across several agriculture commodities led by grains.

Overall, the hedge funds exposure across the 24 major commodity futures markets tracked in this was reduced by 4% to 2 million lots, with the bulk of the reduction being led by the grains sector, and perhaps somewhat surprising Brent crude which saw a 10% reduction despite hitting a three-year high.

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Buyers returned to under owned copper after the price finally shrugged off China concerns to break higher in response to tightening market conditions. The net long jumped by one-third, but at 35.5k lots it remains well below the 91.6k lots peak reached one year ago.

In grains, renewed selling of the three major crops reduced the net long to a 13-month low while softs were mixed, with profit taking reducing a very elevated cotton long, while a 11% price surge helped drive the coffee long to a five-year high.

Forex

The aggregate dollar long against ten IMM currency futures and the Dollar Index remained unchanged at $25.5 billion, the highest since June 2019, with most of action seen in JPY where a 1.9% price drop in USDJPY helped drive a 20% increase in the net short to 76.6k lots or $8.4 billion equivalent. Despite trading weaker on the week some short-covering emerged in EUR (3.9k), CHF (2.7k), GBP (8k).

Some focus on the AUD where a small amount of short covering still left the net short near a record high at 87.6k lots or $6.4 billion equivalent. Surging commodity prices and the re-opening of the economy following lockdowns saw price end the week at the highest level in six weeks.

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What is the Commitments of Traders report?

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:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

 

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