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, February 9. A week where the "everything" rally in stocks found a fresh gear and volatility hovered near a one-year low. The dollar traded softer, bond yields rose while commodities raced higher with broad gains seen across energy, metals and grains.
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 futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, February 9. A week where the “everything” rally in stocks found a fresh gear with the MSCI World Index rising by 2.4% while US stock indices hit fresh record highs and volatility hovered near a one-year low. The dollar traded softer, bond yields rose as the market continued to price in higher inflation while commodities raced higher with broad gains seen across energy, metals and grains.
Commodities
Speculators increased bullish bets on 24 major commodity futures by 5% to a fresh high of 2.7 million lots, representing a nominal value of $143.7 billion. Position extremes above or near one-year highs were seen across multiple commodities from crude oil and products to HG copper, corn, wheat and cattle. A post-pandemic growth sprint combined with tightening supply and continued demand for reflation hedges, helped drive the Bloomberg Commodity index up by 3.1% to a 27-month high.
Energy: The continued rally in crude oil saw Brent break above $60/b for the first time in a year. The move helped drive the combined net long in Brent and WTI to a 28-month high at 727.5k lots, still 33% below the March 2018 record at 1.1 million lots. While short-term momentum indicators began calling for consolidation last week, the long-short ratios remain low, an indication that the speculative length has further room to grow before the trade begin to look crowded. A US cold spell extending as far as Texas has supported the price of natural gas and last week the speculative net long rose by 6% to 348k lots, the seasonal highest bull bet since 2014.
Metals: Gold’s inability to respond to outside market developments saw both long and short positions reduced, thereby leaving the net unchanged and near a 20-month low. Silver saw a small reduction of 2% as the recent Reddit inspired buying frenzy continued to fade. Industrial metals surged higher with platinum’s 9% jump triggering a one-third increase in the net-long to 28.8k lots. HG copper attracted 10k lots of fresh buying with the net long rising to a nine-week high at 87.6k lots.
Agriculture: The grain sector saw renewed buying with the combined long across the six contracts reaching 790k lots, not far from the 824k lots record from August 2012. The market bought grains ahead of last Tuesday’s WASDE report which in the end turned out to be less bullish than the market had expected. Especially corn weakened the following days after the USDA projected supplies above expectations. Soybeans were pulled lower with corn despite a tighter supply outlook while wheat turned lower even as the agency slashed its global stock view by more than expected.
Forex
Speculators continued to scale back their dollar short position in the week to February 9. Despite broad dollar weakness, the Greenback short against ten IMM currency futures and the Dollar Index was nevertheless reduced by 2% to $31.4 billion, an eight week low. Overall the flows were mixed with the selling of JPY (10k lots), CAD (6.6k) and CHF (3.3k) being partly off-set by demand for GBP (11.5k) and EUR (3.2k)
Financials
In fixed income, the managed money category were net buyers of every bond maturity other than ultras. Most noticeable buying in 5’s where the 206k lots reduction in the net short to a three year low at 491k lots was the equivalent of an $11 million per basis point change (DV01). The 10-year Notes net long jumped by one-third to 219k lots, the highest reading in 6-1/2 years. The “everything” rally in stocks helped drive the Cboe VIX short to a one-year high at 138k lots, still well below the record 218k lots from November 2019.
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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