Summary: The weekly Commitments of Traders (CoT) covering the week to July 2, delayed due to last weeks 4th July holiday was released yesterday. The below summary highlights the major changes that occurred in commodities, forex, bonds and stocks. Please find the attached PDF’s for additional information.
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
To download your copy of the Commitment of Traders: Commodity report for the week ending July 2, click here.
To download your copy of the Commitment of Traders: Forex report for the week ending July 2, click here.
To download your copy of the Commitment of Traders: Financials report for the week ending July 2, click here.
Speculators bought WTI and sold Brent crude oil following the G20 meeting in Osaka and the decision by Opec+ to extend production cuts for another nine months. The net long in Brent, the global benchmark, has now following eight weeks of selling dropped to a five-months low. This as demand worries continue to outweigh production cuts and geopolitical risks.
Gold buying continued albeit at a slower pace than the previous four weeks. During this time the net-long has jumped by 208k lots to reach 241k lots, the highest since September 2017. The long versus short ratio reached 15 leaving the contract vulnerable to a short-term correction. Not least following the creation of two long tails and a double top on the weekly chart. Silver’s lack of momentum resulted in a small 7% reduction in the net-long to 22k lots.
Nine weeks of corn buying paused after the June 28 acreage report threw a spanner in the works. The on paper bearish but, probably not report helped trigger a small 3% reduction in the net-long. Continued concerns relating to slow growing pace and with that a delayed (early frost exposed) harvest kept the long side immune from the selling with fresh short positions providing the change.
In soft commodities the most noticeable change was the 50% reduction in the Arabica coffee net-short to 15k lots, the lowest since September 2017.
Speculators cut their gross dollar long against ten IMM currency futures by $7.4 billion to just $12.4 billion, the lowest since June 2018. Bullish dollar bets have now been cut by 65% since the end of April peak.
The dollar selling was broad-based but concentrated against EUR ($3.5bn), JPY ($1bn) and CAD ($1.6bn). The latter turned bullish for the first time since March 2018 while speculators were the least bearish on the JPY since June 2018. GBP and MXN being the two exceptions as they were both sold.
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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