Head of Commodity Strategy
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To download your copy of the Commitment of Traders: Financials report for the week ending June 12, click here.
The speculative long dollar position against nine IMM currency futures continued to extend in the week to July 24, albeit at a slower pace than the previous five weeks.
The gross-long hit an 18-month high at $21 billion with selling of JPY, GBP, CHF, and AUD more than offsetting a 38% jump in the EUR net-long. The latter most likely came in response to President Trump’s renewed attack on the strong dollar, not least against the euro and the Chinese yuan.
The CHF net-short at 45,808 lots was the highest since 2007, this despite having traded within a relative tight range against the dollar for the past three months.
Rangebound trading around 0.74 in the AUD has not prevented a continued rise in bearish bets. Last week the net-short reached 45,486 lots, the highest since December 2015.
Even as the currency strengthened ahead of the July 30-31 Bank of Japan meeting, the JPY net-short nevertheless rose by one quarter to the highest since March. The market is focusing on speculation that the BoJ may move closer to the point where stimulus is being reduced. This despite having seen the BoJ step in and buy 10-year Japanese government bonds to prevent the yield from rising above 0.1% on several occasions this past week.
Financials
Bonds: In fixed income, leveraged traders bought two- and five-year maturities while selling 10-years and Treasury bonds. The curve-steepening trades were initiated following President Trump’s July 19 Fed comments in which he expressed displeasure about rising interest rates.
The net-short in US 10-year notes reached a fresh record of 655,596 lots as the yield moved higher towards 3% ahead of last Friday’s Q2 GDP report.
Stocks: The S&P 500 was sold while small buying of the Nasdaq was seen ahead of key company results from Alphabet, Facebook, and Amazon.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
