Summary: Weekly data compiled in the Commitments of Traders report remain delayed due to the 35 days partial shutdown of the US government between December 22 and January 25. The CFTC will be rolling out figures twice a week and should catch up by March 5. The latest available data, presented here, covers the week to January 22.
Please note that Brent and gas oil show data from the week to February 12.
In Brent crude oil speculators increased bullish bets by 32,062 lots to 266,057 lots, a 15-week high. Short-covering during December and January has now been replaced by a noticeable pick-up in fresh buying.
With one week to go before the post January 30 Federal Open Market Committee meeting-inspired dollar rally, the speculative dollar long against eight IMM currency futures had dropped to $22 billion, a six-month low. The change was driven by a four-week JPY buying spree before and not least after the January 3 flash crash. During this time the JPY net-short was cut by 60% to 40,000 lots.
The COT report on bond futures in the week to January 22 showed how leveraged funds continued to increase what was already a record short position across the US yield curve. Especially the position in Ultra Long Term Bonds showed the continued divide between leveraged funds selling on one hand and asset managers buying on the other.
What is the Commitments of Traders report?
The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.
In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.
In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.
Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.
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.
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.
Equities: The AI fever pushes market to new extremes
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.
China faces challenges from generative AI amidst the fragmentation game
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.
Japan’s riposte to aging and productivity headwinds: robots with generative AI
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.
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.
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.
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.
Fixed income: To hike or not to hike, that is the question
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.
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