Head of Commodity Strategy
Summary: This summary highlights positions and changes made by speculators such as hedge funds and CTA's across commodities, forex, bonds and stock index futures and options up until last Tuesday, December 29. A general quiet holiday impacted week which nevertheless saw speculators increase bullish commodity bets to a record 2.5 million lots representing a nominal value of $125 billion.
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.
This summary highlights positions and changes made by speculators such as hedge funds and CTA's across commodities, forex, bonds and stock index futures and options up until last Tuesday, December 29. A general quiet holiday impacted week, which nevertheless saw speculators increase bullish commodity bets to a record 2.5 million lots representing a nominal value of $125 billion.
Commodities
The Bloomberg Commodity Index traded higher by 0.7% higher during the reporting week thereby supporting a strong yearend finish for the commodity sector. A sector which took a 26% pandemic-led hit during the first quarter before spending the belly part slowly recovering before sprinting into yearend on vaccine optimism, a weaker dollar and emerging focus on reflation trades.
These developments have all helped create a much improved environment for a sector which has not been part of the strong rally seen across other asset classes during the past decade. From an investment perspective and using the Bloomberg Commodity Total Return Index, the sector suffered a 64% slump between the 2011 peak up until the low point last March, which for the index was the lowest in more than 20 years.
Speculators have responded very forcefully to the improved sentiment during the past six month and as we enter 2021 they hold a total net long across 24 major commodity futures of 2.5 million lots, representing a nominal value of $125 billion. While the two previous peaks in 2017 and 2018 were primarily led by the crude oil market, the chart below shows how bullish bets have been spread out more evenly between the three major sectors of energy, metals and agriculture.
Most of last week's buying occurred within the grains sector with several positions reaching multi-year highs. Not least corn where the net-long jumped by 25% to 332k lots, the highest since August 2012. Overall, the biggest bets are held in crude oil with the combined 614k lots long in WTI and Brent representing a nominal value of $30 billion, gold's 137k lots long at a value of $26 billion and finally the soybean complex where the net-long in soybeans, meal and oil reached 399k lots or $19 billion nominal.
The net-long in crude oil and gold, the two biggest contracts in terms of exposure, remains well below their previous peaks which for crude oil was 1.1 million lots reached in March 2018 and 292k lots in gold that was reached in September 2019.
Forex
Despite general dollar weakness during the week, as risk appetite ran wild across most asset classes, speculators made a small 1% reduction in their overall bearish dollar bets against ten IMM currency futures and the Dollar Index. Buying of JPY, MXN and especially CAD were more more than offset by selling of EUR, GBP, AUD and NZD.
As 2021 begins, the main focus from a dollar bearish perspective is focused on long positions in the euro at 143k lots or $22 billion equivalent and the Japanese yen at 47k lots or $5.7 billion while short positions are only held in AUD and NZD.
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:
A new fragmented world order can render some of today's infrastructure obselete, but it also calls for massive new investments across the globe, which requires a new set of strategic and tactical investment strategies.
Steen Jakobsen,
Chief Investment Officer
As globalisation turns to fragmentation, China seems set on playing a role in the global economy, while simultaneously working towards proofing its own economic situation from external shocks and crises.
Redmond Wong,
Market Strategist
The recent bank runs and ensuing challenges are reminicent of something we've seen before. Will it end like the S&L crises of 1986 and 1995?
Chris Dembik,
Head of Macroeconomic Research
Equity markets need to recalibrate to another - fragmented - global world. What's your view on equities in this market - are they going up or down?
Peter Garnry,
Head of Equity Strategy
With every development comes new opportunites, some of which could be in India. Have you considered the country as a part of your diversification strategy?
Charu Chanana,
Market Strategist
A collar is an option strategy that allows some protection while maintaining some upside potential. What investment would you like to use a collar strategy for?
Hans Oudshoorn,
Trainer Academy
There are arguments to be made for many commodities to have upside. Which are you paying the most attention to this quarter?
Ole S. Hansen,
Head of Commodity Strategy
In a very challenging macro environment, which currencies do you think will come out on top?
John J. Hardy,
Head of FX Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
