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 17. A week where the S&P 500 reached a record closing high on vaccine optimism and bullish Asia data while risk sentiment was further supported by a weaker dollar and lower bond yields. The Bloomberg Commodity Index held steady with a mixed performance seen across the sectors.
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 17. A week where the S&P 500 reached a record closing high on vaccine optimism and bullish Asia data while the VIX dropped to a three-month low at 22.7%. Risk sentiment was further supported by a weaker dollar and a 10 basis point drop in U.S. ten-year yields to 0.85%. The Bloomberg Commodity Index held steady with a mixed performance seen across the sectors.
Commodities
Speculators bought commodities for a second week with Covid-19 vaccine and growth/demand optimism more than offsetting a continued surge in coronavirus cases. The total net long across the 24 futures contracts tracked in this rose by 4% to 2.25 million lots with net buying seen across all sectors, with one exception being the grains sector where profit taking among the three major crops extended into a second week.
The Brent crude oil net long jumped by 39% to 180,610 lots (180.6 million barrels) on a combination of fresh longs and short covering as the market began pre-empting a more sustained recovery in oil demand into 2021. However, while longs build the price traded unchanged with the short-term demand outlook still challenged by renewed lockdowns and drop in mobility.
Precious metals saw renewed buying with gold once again finding support ahead of key support at $1850/oz. The net long rose by 10% to 122k after hitting a 17 month low the previous week when the Pfizer/BioNTech news sent prices sharply lower. Platinum bulls responded to the 5% price increase by lifting the net long to 6k lots, a nine week high but well below the 53,000 lots peak from January.
The agriculture sector was mixed with profit taking hitting the grains sector led by soybeans and wheat. The soft sector meanwhile saw strong buying with sugar and coffee prices rising in response to a stronger BRL and drought raising supply concerns. Cocoa traders meanwhile responded to an abrupt turnaround by returning to a net long. The reason behind the near 15% rally last week was described in Friday’s Weekly Commodity Update.
Forex
Despite trading lower, speculators still cut bearish dollar bets to a four month low in the week to November 17. The short against ten IMM currency futures and the Dollar Index was cut by $1.5 billion to $22.5 billion with the main contributor being a 29% reduction in the JPY long from a four-year high. Together with light selling of EUR, CHF and GBP these changes more than offset buying of CAD, AUD, NZD and MXN.
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:
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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.
