COT: Speculators add length on vaccine optimism COT: Speculators add length on vaccine optimism COT: Speculators add length on vaccine optimism

COT: Speculators add length on vaccine optimism

Ole Hansen

Head of Commodity Strategy

Summary:  This summary highlights positions and changes made by speculators such as hedge funds and CTA's across commodities and forex futures and options up until last Tuesday, November 17. A week where the S&P 500 reached a record closing high on vaccine optimism and bullish Asia data while risk sentiment was further supported by a weaker dollar and lower bond yields. The Bloomberg Commodity Index held steady with a mixed performance seen across the sectors.


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 and forex up until last Tuesday, November 17. A week where the S&P 500 reached a record closing high on vaccine optimism and bullish Asia data while the VIX dropped to a three-month low at 22.7%. Risk sentiment was further supported by a weaker dollar and a 10 basis point drop in U.S. ten-year yields to 0.85%. The Bloomberg Commodity Index held steady with a mixed performance seen across the sectors.

Commodities

Speculators bought commodities for a second week with Covid-19 vaccine and growth/demand optimism more than offsetting a continued surge in coronavirus cases. The total net long across the 24 futures contracts tracked in this rose by 4% to 2.25 million lots with net buying seen across all sectors, with one exception being the grains sector where profit taking among the three major crops extended into a second week.  

The Brent crude oil net long jumped by 39% to 180,610  lots (180.6 million barrels) on a combination of fresh longs and short covering as the market began pre-empting a more sustained recovery in oil demand into 2021. However, while longs build the price traded unchanged with the short-term demand outlook still challenged by renewed lockdowns and drop in mobility.

Precious metals saw renewed buying with gold once again finding support ahead of key support at $1850/oz. The net long rose by 10% to 122k after hitting a 17 month low the previous week when the Pfizer/BioNTech news sent prices sharply lower. Platinum bulls responded to the 5% price increase by lifting the net long to 6k lots, a nine week high but well below the 53,000 lots peak from January. 

The agriculture sector was mixed with profit taking hitting the grains sector led by soybeans and wheat. The soft sector meanwhile saw strong buying with sugar and coffee prices rising in response to a stronger BRL and drought raising supply concerns. Cocoa traders meanwhile responded to an abrupt turnaround by returning to a net long. The reason behind the near 15% rally last week was described in Friday’s Weekly Commodity Update.

Forex

Despite trading lower, speculators still cut bearish dollar bets to a four month low in the week to November 17. The short against ten IMM currency futures and the Dollar Index was cut by $1.5 billion to $22.5 billion with the main contributor being a 29% reduction in the JPY long from a four-year high. Together with light selling of EUR, CHF and GBP these changes more than offset buying of CAD, AUD, NZD and MXN.

What is the Commitments of Traders report?

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:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

 

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)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992