Head of Commodity Strategy
Summary: The Commitments of Traders reports highlight speculators positions and changes made during the week to October 13 in FX, bonds and stocks. A week where dollar short covering continued despite a softer Greenback. A furious rally in big tech lifted stocks to a six week high while bond yields held steady with rising breakevens being offset by falling real yields.
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 13.
A week where a furious rally in big tech helped lift U.S. stocks to the highest in almost six weeks. Also in focus was the beginning of the earnings season as well as the ebb and flow of news regarding a fresh round of U.S. stimulus. The S&P 500 rose 4.5%, bond yields held steady with rising breakevens being offset by lower real yields.
Despite trading softer, speculators bought dollars for a seventh consecutive week as hopes for a U.S. stimulus package ebbed and flowed and the number of Covid-19 cases in Europe continued to rise while the timing of a vaccine continued to be pushed back. Against ten IMM currency futures and the Dollar Index, the dollar short was reduced by 5% to $27.6 billion.
The two main contributors being euro long liquidation and a 64% reduction in the Aussie dollar long. Elsewhere the Dollar Index position turned net long for the first time since June
The reflation trade continued to gain momentum during a week where steady yields on U.S. 10-year and 30-year bonds hid a rise in breakevens and lower real yields. In response to this the leveraged fund net short in U.S. T-Bonds reached a new record of 439,395 lots.
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
