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 August 23. A week that saw financial markets trade increasingly nervous with stocks selling off while the dollar and yields rose ahead of Friday’s speech by Federal Reserve Chair Jerome Powell. Developments that triggered fund selling in precious metals while energy and grains was in demand due to a tightening supply outlook
Overall hedge funds increased their exposure for a fourth consecutive week, this time by 13% to 1.1 million contracts, some 264k above the end of July low point.
Energy: Funds increased bets on rising crude oil prices for the first time in five weeks with the combined long in WTI and Brent being lifted by 22% to 338k lots. This in response to a near +8% rally during the week as the focus returned to a continued tight supply outlook with the gas-to-fuel switching providing an additional layer of support. While the combined gross long was increased by 20k lots, it was a 40k lots capitulation among short sellers that provided the main input to the change.
Surging gas prices driving increased demand for diesel helped lift gas oil by 10% and the net long by 24% to 76.5k lots, still only half the 152k lots peak seen from last October. Natural gas traders cut their net short by 66% with the bulk of the change being driven by fresh longs being added.
Metals: Precious metals saw renewed selling ahead of Jackson Hole with the stronger dollar and rising yields triggering a fresh round of short selling by funds. The result being a 34% reduction in the gold long to 30k while silver and platinum saw big increases in already established net short positions. Copper found support after China’s government announced fresh initiatives to support an economy struggling with Covid lockdowns and a property sector crisis. The result being a 71% reduction in the net short to -4.8k lots, an 11-week low.
Agriculture: The grains sector, led by corn and soybeans, continued to recover from the June to July 25% correction. Buyers bought the sector for a fourth consecutive week with an improved fundamental outlook due to adverse weather in the US and China triggering fresh buying interest. The bulk of the 111k lots increase during this time has been driven by corn with the soybean complex also picking up steam while the two wheat contracts have seen net selling during this time.
The forex market responded to a 1.6% increase in the Dollar index ahead of Jackson Hole by turning broad buyers albeit in small size of dollars against nine IMM currency futures. The two exceptions being GBP and CHF where short covering reduced the net short in both. The euro net short reached 44k lots or €5.5 billion, the highest since March 2020 when the market was in covid panic mode. Overall the gross dollar long reached a three week high at $18 billion, down 24% from last months peak and high for the year at $23.8 billion.
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
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.
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.
