Head of Commodity Strategy
Summary: This update highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, January 19. A relatively quiet week where the market focused on a continued rise in Covid-related lockdowns and the beginning of the US earnings season. The reflation trade focus meanwhile began to fade with Republicans pushing back against President Biden's $1.9 trillion Covid-19 relief plan. Few changes in energy and metals while grain longs were cut ahead of the biggest weekly slump since 2016
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, forex, bonds and stock indices up until last Tuesday, January 19. A relatively quiet week where the market focused on a continued rise in Covid-related lockdowns and the beginning of the US earnings season. The reflation trade focus meanwhile began to fade with Republicans pushing back against President Biden’s $1.9 trillion Covid-19 relief plan.
While the Nasdaq pushed higher, the S&P 500 and global stocks in general traded unchanged while the dollar stayed bid after Yellen’s comment that the new administration is not seeking a weaker dollar. US 10-year bond yields ticked lower by four basis points as real yields slumped back below minus 1%. The Bloomberg Commodity Index traded lower for a second week, thereby attracting another week of mild profit taking.
Commodities
Speculators made another albeit small reduction in bullish bets on 24 major commodity futures contracts. Overall the Bloomberg Commodity Index traded lower by 0.7% with losses in crude oil, natural gas and not least the soybean complex being partly offset by gains in platinum, corn and the soft contracts of sugar, cocoa and coffee. Overall the net-long was cut by 1% to 2.5 million lots, still near record levels, with the biggest reductions seen in soybeans, corn and natural gas while buying supported fuel products (gas oil & diesel), wheat and coffee.
Energy: In crude oil, small buying of WTI was almost being offset by Brent selling with the combined net-long reaching a 12 month high at 669k lots. Fuel products led by gas oil and ULSD (diesel) all got bought while the natural gas long was cut by 2% in response to a 7.5% drop in the price on milder US weather outlook.
Metals: A reduction in both long and short left the gold net unchanged on the week, this following the 31% reduction to a 19 month low in the previous week. Small changes seen in both silver (-4% to 41k lots) and HG copper (+3% to 78k lots).
Softs: Small changes in sugar, cocoa and cotton while the Arabica coffee long jumped 52% to 24k lots on Conab's Brazil production downgrade.
Forex
The rising yield-led dollar rally during the first weeks of January continued to be met with net speculative dollar selling during the week to January 19. Speculators increased their dollar short against ten IMM currency futures and the Dollar Index by 2% to $36.6 billion, a level not seen in almost ten years. However, looking at the table below we find a much more mixed picture than in previous weeks, with most of the dollar selling being concentrated against the euro after speculators lifted the net long in ECH1 by 7.6k lots to 163.4 lots (€20.4 billion).
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:
The end of the road
Emboldened by surging crude oil prices, Saudi Arabia makes waves on the international stage, as Crown Prince Mohammed bin Salman manages to create a World Champions League, after buying the UEFA Champion League franchise.
As the world embraces GLP-1 obesity wonder drugs, the people next in line to get a prescription stop caring about dieting and exercising, figuring that the drug will later solve all of their weight-related health problems.
With the US budget deficit spiraling above 10% of the GDP, the government is desperate to foster demand for US Treasuries. Under intense pressure from the White House, Congress makes income from government bonds tax-free.
After a criminal group deploys the most deceptive AI deepfake ever seen, generative AI becomes a national security threat. With public distrust soaring, governments crack down with harsh new laws, puncturing the AI hype.
To fix the divergence in the global trade and financial system, the largest deficit countries unite to negotiate new world trade terms. For surplus countries, the reset of the global economic model is a painful adjustment.
As discontent with Biden and Trump rises to fever pitch, Robert F. Kennedy Jr sees his support rising inexorably in the polls. On November 5, Kennedy wins the US presidential election, ushering in a new era in US politics.
Stepping up Japan's economic transformation in 2024, PM Kishida brings in a host of populist policies to boost domestic demand. As the GDP growth rate hits 7%, the BoJ is forced to abandons its yield curve control policy.
As people wake up to how little tax Europe’s billionaires are actually paying, the EU Commission implements a wealth tax of 2%. The tax sends shockwaves through Europe's luxury industry, with luxury giant LVMH plunging 40%.
