Head of Commodity Strategy
Summary: Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to June 28. A relative calm week following recent turmoil driven by recession and aggressive rate hike focus. While US stocks traded higher as bond yields dropped and the dollar held steady, commodities suffered another week of weakness with speculators responding by cutting their exposure to a 23-month low.
This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to June 28. A week that was relatively calm following recent turmoil driven by recession and aggressive rate hike focus. US stocks traded higher as bond yields dropped while the dollar held steady. Commodities, meanwhile suffered another week of weakness with speculators acting accordingly by cutting their exposure to a 23-month low.
Commodities
The commodity sector extended its decline during the reporting week with Bloomberg Commodity Spot index declining falling by 3% to a level last seen in early Mach when prices surged on supply fears related to Russia’s attack on Ukraine. All sectors were sold, led by industrial metals and softs with copper (-6.6%) and cotton (-17.9%), two recession shy commodities both suffering setbacks as economic data continued to deteriorate.
Overall, the total net long held by money managers across the 24 major commodity futures tracked in this, dropped by 16% to 1,25 million lots, a level of exposure last seen 23 months ago during the immediate aftermath of the global pandemic breakout. Biggest amount of selling seen in grains, sugar, natural gas, gold and copper.
Energy: Fortress crude oil only witnessed a small 2.4k lots net reduction with selling of Brent being partly offset by demand for WTI. The combined net long at 441k lots, reached a 7-week low but stayed well above the December and April lows around 400k lots. All three fuel product futures saw net selling while the natural gas position flipped to a net short and a 27-month low at -20.5k lots, this in response to a 42% price collapse after the Freeport LNG explosion reduced exports while supporting the domestic storage situation.
Metals: The sector continued to see selling pressure led by copper in response to a deteriorating technical and fundamental outlook which helped drag silver and with that also gold down with it. The result being a challenged gold market where speculators responded to renewed weakness by cutting bullish bets by 25% to 46.6k lots, a nine-month low, with most of the change being driven by an increase in the number of naked short positions.
Silver’s 4.5% drubbing helped trigger a 87% reduction in the net long to 1k lots, near neutral and a 3 year low. Copper’s loss of momentum below key support-turned-resistance at $3.95 and shorting interest from macroeconomic funds looking for a recession helped drive a 59% increase in the net short to 25k lots, the biggest bet on lower prices since April 2020.
Agriculture: The net selling that began in late April across the grains sector, and some two weeks before prices peaked, accelerated last week. From holding a net long position of more than 800,000 lots across the six grain and soybean futures tracked in this, the net dropped to a just 475k last week, led by corn and soybeans. Softs saw the sugar length cut by 39% to just 71k lots from a 238k peak on April 12. Cotton a market long supported by tight supply and strong demand, slumped 18% on prolonged worries about Chinese demand and not least due to a major long position being caught offside, resulting in the net long being reduced by 24% to one-year low at 47k lots.
Forex
Speculators cut bullish dollar bets by 12% in the week to June 28, and despite sealing its best quarter since 2016 they remain hesitant about extending bullish dollar bets. Against nine currency futures and the dollar index, the $2.4 billion reduction to $17.8 billion, a three-week low, were driven by broad buying of all the major currency except CHF and AUD, most notably short-covering in GBP (+10k lots to -53k lots), EUR (+5k to -11k) and JPY (+6k to -53k).
The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.
Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)
The reasons why we focus primarily on the behavior of the highlighted groups are:
2024: The wasted year
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Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
