Head of Commodity Strategy
Summary: This summary highlights positions and changes made by speculators such as hedge funds and CTA's across commodities and forex futures and options up until last Tuesday, November 24. A week where the market behavior was dictated by continued vaccine optimism and the formal start of President-elect Biden's transition, news that removed the threat of a contested transfer of power.
Saxo Bank publishes 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 commodities and forex up until last Tuesday, November 24. The reports, normally published on Friday’s by the U.S. CFTC was delayed due to last week’s Thanksgiving holiday.
During the week, the market behavior was dictated by continued vaccine optimism and the formal start of President-elect Biden’s transition, news that removed the threat of a contested transfer of power. These market-friendly developments helped lift the S&P 500 by 0.7% while the Dow Jones topped 30,000 for the first time. The dollar traded softer, ten-year U.S. bond yields ticked higher by a couple of basis points while the Bloomberg Commodity index rose by 1.1%, led by strong gains in crude oil, copper and agriculture while gold and silver both took a hit.
Commodities
Speculators increased bullish bets across 24 major commodity futures to a near three-year high in the week to November 24. The 3% increase to 2.3 million lots was primarily driven by those commodities, most noticeable crude oil, benefitting from a vaccine driving recovery in growth and demand. Gold, the safe haven metal, saw another slump while copper and platinum saw increased buying interest. The agriculture sector was mixed with another week of profit taking in soybeans and sugar being more than offset by strong buying of corn, coffee and not least cocoa.
Forex
The raised level of market risk appetite driven by vaccine optimism and reduced risk of a contested U.S. presidential election helped softening the dollar during the week to November 24. The weakness, most prominent against CAD, AUD, NZD and MXN, helped drive a 12% increase in the overall dollar short against ten IMM currency futures and the Dollar Index to $25.3 billion. Still well below the -$34.9 billion peak back in August.
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:
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
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.
Althea Spinozzi,
Senior Fixed Income Strategist
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.
Charu Chanana,
Market Strategist
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.
Peter Garnry,
Head of Equity Strategy
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.
Ole S. Hansen,
Head of Commodity Strategy
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.
Redmond Wong,
Market Strategist
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.
Peter Siks,
Investment Coach
