Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Gold length reduced but no appetite for short selling
Ole Hansen
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 Tuesday, May 23. A week where US stocks, led by tech-heavy Nasdaq, were in buoyant mood while the dollar and bond yields continued higher amid robust economic data raising expectations for another rate hike before July. In the update below we take a closer look at how speculators in forex and commodities futures responded to these developments.
Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.
What is the Commitments of Traders report?
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:
- They are likely to have tight stops and no underlying exposure that is being hedged
- This makes them most reactive to changes in fundamental or technical price developments
- It provides views about major trends but also helps to decipher when a reversal is looming
Global Market Quick Take Europe
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This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, May 23. A week where US stocks, led by tech-heavy Nasdaq, were in buoyant mood despite a lack of progress in the debt-limit talks. The dollar and bond yields meanwhile continued higher with robust economic data raising expectations for another rate hike before July. In the update below we take a closer look at how speculators in forex and commodities futures responded to these developments.
The Bloomberg Commodity Index, which tracks spot prices of a basket of major commodity futures spread evenly between energy, metals and agriculture, fell to a fresh 16-month low with focus on China’s lackluster recovery and recession worries elsewhere combined with the stronger dollar and rising yields in anticipation the FOMC stepping up their effort to kill inflation, thereby inadvertently raising additional growth concerns. In addition, traders also had to deal with a higher oil price after the Saudi energy minister told speculators to “watch out”.
Commodity sector:
The Bloomberg Commodity Index, which tracks spot prices of a basket of major commodity futures spread evenly between energy, metals and agriculture, fell to a fresh 16-month low with focus on China’s lackluster recovery and recession worries elsewhere combined with the stronger dollar and rising yields in anticipation the FOMC stepping up their effort to kill inflation, thereby inadvertently raising additional growth concerns. In addition, traders also had to deal with a higher oil price after the Saudi energy minister told speculators to “watch out”.
Responding to these developments, hedge funds bought Brent, natural gas and copper while selling WTI and gold. The agriculture sector meanwhile was mixed with renewed selling of grains offsetting demand for softs and livestock.
Crude oil and fuel products: Money managers increased their net-long position in Brent by more than 30,000 contracts, the biggest increase in almost two months. The increase was driven by a combination of fresh longs (16.5k) and a 13.6k contract reduction in the gross short. In WTI the opposite story resulted in a 17k contract reduction in the net long to 143k. Short covering in gasoil meanwhile extended to a third week while the RBOB gasoline net long jumped 25%.
Gold, silver and copper: Hedge funds were net sellers of gold for a second week, but interestingly the reduction was driven by long liquidation with no appetite for short selling despite the recent technical breakdown. Equally in silver the selling appetite was also muted while the copper net short was reduced by 27%, the first reduction following five weeks of constant selling that saw the net drop from a 20k net long to a 22.6k net short
Grains: Selling of grains resumed resulting in the net-short across the six soy and grains contracts reaching a fresh 33-month high at -159k contracts. All contracts, except KCB wheat saw net selling led by soybeans and soybean meal.
Softs: All four contracts tracked in this update continued to be bought as the supply outlook for sugar, coffee and cocoa remains challenged by adverse weather developments, most notably an ongoing heatwave across Asia. The main change this past week, however, was a 163% reduction in the cotton net short to 8k contracts.
Forex
In forex, speculators cut their IMM dollar short by 22% to $11.7 billion with the bulk of the buying seen against EUR and JPY, and partly offset by short covering in AUD and NZD as well as continued buying of MXN.
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