Head of Commodity Strategy
Summary: Speculators cut bullish commodity bets to a record low just before the biggest one-day price jump since November. Short positions exist across most agriculture commodities while precious metals continued to be bought ahead of an abrupt change in sentiment driven by renewed trade hopes and weaker dollar.
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.
The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, September 3. This was the day when the market hit peak pessimism in response to the September 1 tariff hikes, Hong Kong and Brexit jitters. Developments which led to several false breakouts and subsequent reversals across several key markets from bonds, stocks and dollar to oil, copper and not least precious metals.
During the week speculators cut bullish bets to a record low of 38,605 lots. This just before the Bloomberg Commodity Index jumped the most since November. The agriculture sector continued to be sold with net-short positions being held in all but a couple of livestock contracts. Once again it was corn, wheat and sugar that was hardest hit with the latter reaching a fresh record of 189,100 lots. Crude oil traders made only small adjustments while precious and platinum group metals were bought
Precious metals continued to be bought ahead of the abrupt sentiment change towards the end of last week. The gold net-long surpassed the record from the previous week after rising by 2,858 lots to 290,709 lots. The 9% increase in the silver net-long to 63,466 was a relatively small response during a week where the metal rallied by 5%. This was also highlighted in the breakdown between long and short positions which showed that most of the increased was driven by short-covering not fresh longs. The 10% rally in platinum meanwhile led to a 169% jump in the net-long to 22,774 lots. Copper was close to unchanged with fresh long and short position being added as the contract temporarily hit a new two-year low
The combined net-long in WTI (-14k) and Brent (+18k) crude oil rose by 4k lots to 410,493 lots with speculators going in opposite directions for a second week. The net long has hardly moved during the past three months with Brent struggling to break away from $60/b and WTI away from $55/b. The improved technical outlook towards the end of last week however could add support to prices into a week full with oil market related events and news.
First up the market has to gauge the impact - if any - of the weekend announcement from Saudi Arabia that Prince Abdulaziz has taken over the energy ministry from Khalid Al-Falih. While we expect limited market impact it may still highlight the growing unease about an oil price stuck more than 20 dollars below the Kingdom's desired level. The new energy ministers will be attending the World Energy Congress (@WECongress) in Abu Dhabi before joining the OPEC+ JMMC meeting on Thursday. Apart from the weekly US stock report the three major forecasters EIA tomorrow, OPEC on Wednesday and IEA on Thursday while all publish their monthly oil market reports.
RBOB Gasoline saw the biggest change with a 31% reduction cutting the net-long to 41,807 lots, a two-year low.
Short positions across the three major crops reached 213,535 lots with the upcoming US harvest adding to bulging supplies while competition from other growers in South America and Europe remains due to the strong dollar and trade war with China.
In sugar the drop to 11 cents/lb, a one-year low, helped drive the net-short to a fresh record of 189,100 lots. India is preparing to dump subsidised stocks onto the global market in order to bring down bulging stockpiles.
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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.
