Head of Commodity Strategy
Summary: This summary highlights futures and options positions and changes made by speculators such as hedge funds and CTA's across 24 commodities up until last Tuesday, October 20. A week were strong gains in grains and industrial metals helped lift the Bloomberg Commodity Index by 2%. Hedge funds in response to this increased bullish commodity bets to a 3-1/2 year high at 2.3 million lots
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.
This summary highlights futures positions and changes made by speculators such as hedge funds and CTA’s across 24 commodities up until last Tuesday, October 20.
A week where the lack of progress on a U.S. stimulus package and a continued rise in global Covid-19 cases helped sent the S&P 500 lower by 2%. The Dollar Index meanwhile dropped 0.5% while long-end bond yields ticked higher to reach a four-month high. Commodities maintained their recent strong momentum with the Bloomberg Commodity Index, led by industrial metals and grains, rising by 1.9% to an eight-month high.
All sectors with the exception of livestock rallied higher in the week to October 20. Grains (+4.1%) and industrial metals (+3%) led from the front with the biggest winners being WTI crude oil, HG copper, silver, corn, wheat and sugar while losses were concentrated in coffee and both cattle contracts.
In response to these gains, hedge funds increased bullish bets across the 24 futures tracked in this report by 8% to 2.3 million lots, the highest since February 2017. New multi-month highs were seen in natural gas, HG copper, soybean meal, corn, Kansas wheat, sugar and cotton. Net short positions were held in just three contracts: Ny Harbor ULSD, platinum and feeder cattle.
Energy: Speculators added the most crude oil length since April with the combine net long in Brent and WTI crude oil rising by 58,453 lots to 472,390 lots, a seven-week high. The increase occurred during a week where prices recovered back to the top of their established ranges before trading lower again on a surprise U.S. stock build and continued concerns about the pandemics impact on fuel demand at a time of rising production from Libya, now forecast to reach 1 million barrels/day within weeks.
Natural gas’ return to $3/mmBtu on rising cold weather demand and recovering LNG exports helped drive the net-long in four Henry Hub deliverable futures and swap contracts to 359,000 lots, the highest since May 2017.
Metals: Gold and silver were both bought while platinum was sold for a fifth week. It remains just one of three contracts where funds hold a net short position.
HG copper’s renewed rally on yuan strength and supply disruptions in Chile saw the net-long rise by 14% to 61,578 lots, the highest since January 2018.
Latest: Gold (XAUUSD) remains stuck within its established range as the market continues to struggle for direction. Today’s narrative has been driven by the fading prospects for a “blue wave” in next week's election, a development that may reduce the reflation and stimulus narrative as the Democrats need the Senate to push these through. Adding to this, the markets must also navigate fading prospects for a pre-election stimulus deal, a stronger dollar and the renewed surge in coronavirus infections. For now, gold remains stuck between $1930/oz and $1885/oz.
Agriculture: In grains the combined net long across six soy, corn and wheat contracts reached 702,249 lots, the highest since 2012. The 75k lots increased was broad-based led by corn (48k lots) and CBOT wheat (11k).
In softs, the sugar long surged higher to reach a fresh four-year high at 254,556 lots to stand just 31k lots below the all-time record of 286k lots from September 2016. Back then the sweetener traded almost 10 cents higher than the current price. Arabica coffee’s 4.7% sell off drove a 27% reduction in the net long to 19,738 lots, a two-month low.
2024: The wasted year
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.
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.
