Head of Commodity Strategy
Summary: This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, October 17. A week that saw US Treasury yields continue to spike higher while the market had to deal with geopolitical uncertainties as the Israel-Hamas war intensified. Commodities saw wrong-footed short sellers of gold turn into heavy buyers while the Middle East crisis triggered a subdued response in crude oil.
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 main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's are:
Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.
This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, October 17. A week that saw US Treasury yields continue to spike higher while the market had to deal with geopolitical uncertainties as the Israel-Hamas war intensified. The dollar traded higher while the short-end rates market priced in a high for longer outlook, the result being a jump in US 2-year yields to levels last seen in 2006. Commodities saw wrong-footed short sellers of gold turn into heavy buyers while the Middle East crisis triggered a subdued response in crude oil.
The Bloomberg Commodity index jumped 1.2% during the week with gains seen across all sectors except industrial metals and livestock. Speculators responded surprisingly in some markets, to rising Treasury yields, a stronger dollar and geopolitical uncertainty: Brent bought but WTI sold despite Middle East supportive focus, Gold sees big round of buying with net back to a long, copper sold ahead of key support, grains selling looks exhausted, coffee shorts and cotton longs both getting squeezed. While 14 out of 24 major futures contracts covered in this update saw net selling, the overall exposure rose, primarily driven by demand for Brent, gold, silver and coffee.
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.
