Head of Commodity Strategy
Summary: The Commitments of Traders reports highlight speculators positions and changes made during the week to August 11 in FX, bonds and stocks. Appetite for risk during this period were mixed with vaccine hopes driving stocks higher and the dollar higher while bond yields corrected higher. A record and still rising euro long potentially raising the risk of a dollar correction.
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 forex, bonds and stocks up until last Tuesday, August 11. A mixed week in terms of market action with another dose of vaccine hopes and better-than-expected economic data supporting a 0.9% rise in the S&P 500 to move within a whisker of its February record.
A 13 bp rise in U.S. 10-year yields and a removal – using Fed Funds futures – of the risk that the Fed will move towards a negative-rate policy, helped trigger profit taking across interest rate sensitive sectors, such as precious metals. The Dollar index rose by 0.3% with a record euro long raising concerns about a correction, not only in forex but also among commodities sensitive to sudden dollar strength.
Speculators increased their short dollar position to a fresh nine-year high in the week to August 11. The net short against ten IMM currency futures and the Dollar Index rose by 12% to $33 billion, the highest reading since May 2011. The rapid pace of selling has resulted in the dollar short position more than doubling during the past five weeks.
However, drilling into the numbers we are not, as opposed to recent weeks, finding broad selling of the Greenback. The vast majority of the short position is due to a continued expansion of the euro long which last week rose 11% to reach a new record of nearly 200,000 lots or €25 billion. Dollar selling was also seen against Sterling where 11,906 lots of buying lifted the net-short to just 2,821 lots, the least bearish in four months. Additional buying of the Swiss Franc increased the net-long to a nine-year high.
The dollar meanwhile was bought against JPY, CAD and AUD as the contraction in yield spreads and weaker commodities supported short covering in the JPY and additional short-selling of CAD and AUD.
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
