Summary: The Commitment of Traders report for the week ending September 25 shows the dollar largely unchanged while yen selling offset GBP buying. In equities, traders increased short bets on the VIX.
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: Forex report for the week ending September 25, click here.
To download your copy of the Commitment of Traders: Financials report for the week ending September 25, click here.
Speculators maintained an unchanged dollar long against nine IMM currency futures. Buying of GBP and CAD was offset by a 33% jump in the JPY net-short to 84,719 lots, a six-month high.
Despite a 35% reduction in the IMM CAD net-short last week amid Nafta talks and higher oil prices, the combined short of the three commodity currencies stayed close to a four-year high, not least due to record and arguably extreme short positioning in both AUD and NZD.
Leveraged funds maintained an unchanged short duration in US bonds ahead of last week’s post-Federal Open Market Committee squeeze when 10-year bond yields moved lower after failing to break the May high at 3.13%.
Short-covering in five- and 10-years helped offset selling at the far end of the curve while the net-short position in three-month Eurodollar futures was cut by 17% to 1.1 million lots, a two-year low.
In equities traders bought stocks while increasing short bets on the VIX which rose 20,001 lots to 139,775 lots, some 80% of the 12-month peak.
The road to a bond bull market is paved, although challenges remain
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
FX: King dollar and its far-reaching repercussions
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Equities: Higher cost of capital is getting painful
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Commodity sector supported by peak rates, tight supply focus
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
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