Head of Commodity Strategy
Summary: The Commitments of Traders reports highlight speculators positions and changes made during the week to October 6 in FX, bonds and stocks. A week where the prospect for additional U.S. stimulus and the reflation focus - as Biden extended his lead in the polls - saw the dollar trade softer while long bond yields jumped
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in 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 speculators in forex, bonds and stocks up until last Tuesday, October 6.
This was the week where President Trump’s coronavirus diagnosis helped support the prospects both for stimulus and an easier election win by Joe Biden as he extended his advantage in opinion polls. In response to these developments, the S&P 500 traded higher by 1% while the dollar was slightly softer. The big move, however occurred at the far end of the U.S. yield curve, with yields on 10 and 30-year bonds surging to a four-month high.
Despite trading lower against all but one of the ten IMM currency futures tracked in this report, speculators still reduced bearish dollar bets by 7% to $28.9 billion.
The bulk of the reduction – as per the table below - was against the euro, where continued profit taking saw the net long being cut by 7% to a ten-week low at 174,308 lots or €21.8 billion. The Japanese yen long was reduced by 3,687 lots while most other changes were relatively small apart from the Dollar Index where the net-short was almost cut in half.
The mentioned reflation trade continued to gain momentum during a week where the the yield on U.S. 10-year and 30-year bonds both jumped by 10 basis points. In response to this the leveraged fund net short in U.S. T-Bonds reached a new record of 432,589 lots giving it a value of $75.4 billion. The almost by the Fed controlled nature of the front of the yield curve have seen speculators betting or hedging against rising inflation and rising bond yields further out the curve.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
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,
Head of Equity Strategy
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
