The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, February 25. A reporting period that just caught the front end of a week that turned out to be one of the worst in financial markets since the 2008 global financial crisis.
As volatility spiked, deleveraging from margin traded funds tracking a certain level of volatility kicked in. It left all elevated positions, both long and short, at risk of a correction. The most noticeable being gold which despite a very supportive backdrop experienced its biggest one-day plunge on Friday since 2013.
As the table shows hedge funds resumed their broad-based selling during the reporting week. The only three noticeable exceptions being soybeans, sugar and not least crude oil. By Friday the shock waves from a worsening virus crisis had driven the Bloomberg Commodity Index down by 7%. A global drop in consumer confidence, behavior and spending may add pressure at a time where companies are already under pressure from broken supply lines as China, the world’s production center of everything, struggles to get back to work.
The Port of Los Angeles a key hub for trade with Asia is projecting a 25% drop in container volumes this months. China’s official PMI index fell to a record low 35.7 in February, highlighting the damage from the coronavirus outbreak on the world’s second-largest economy already challenged by the trade war with the U.S. With these developments in mind the markets will once again look to central banks and government for support. The expectations for future rate cuts have surged with the market currently pricing in an imminent U.S. rate with another two to follow before June.