Head of Commodity Strategy
Summary: Leveraged funds increased bullish commodity bets by the most in seven months during the week to October 2. Buying was led by natural gas, soybeans, corn and coffee with the exceptions being wheat, sugar, cocoa and surprisingly crude oil.
The most striking change in last week’s update was the net-selling seen in both Brent and WTI crude. Despite all the talk about supply shortages and $100/b before year end, leveraged funds instead chose to reduce exposure. The combine net-long in Brent and WTI crude oil was cut by 27,855 lots on a combination of longs being reduced and new shorts being added.
The net-long in WTI crude oil dropped to a 15-week low as the prompt spread declined to the lowest since June. A sign of rising crude oil supplies within the US as refinery demands drop and Chinese demand dries up.
The natural gas long, which comprises four different Henry Hub deliverable contracts, jumped by 45% in response to a continued rally above $3/MMBtu. A rally that lasted until Thursday when a bigger-than-expected stock increase helped trigger some profit taking.
All metals with the exception HG copper were bought with gold and silver beginning to show signs of immunity from the stronger dollar and rising bond yields.
Strong buying of the soybean complex and corn helped drive a 44% reduction in the grains sector net-short.
In soft commodities, the coffee net-short was cut by 12% as the up until recently under siege bean continued to recover from a 12-year low. In cocoa the net-short doubled to reach a one-year high.
General note:
The reasons why we focus primarily on the behaviour of leveraged funds:
• 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
AI: The good, the bad, and the bubble
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Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
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As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
