COT: Broad commodity buying; Dollar long jumps COT: Broad commodity buying; Dollar long jumps COT: Broad commodity buying; Dollar long jumps

COT: Broad commodity buying; Dollar long jumps

Ole Hansen

Head of Commodity Strategy

Summary:  Futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, October 5. A week that saw stock markets gyrating between sharp gains and losses in response to US debt ceiling talks, tightening Federal Reserve policy and the energy crunch. While the dollar and yields traded steady a lot of action was once again seen in commodities where speculators continued to accumulate exposure across most 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.

This summary and attached report highlight futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, October 5. A week that saw the S&P alternating between sharp gains and losses in response to US debt ceiling talks, tightening Federal Reserve policy and the energy crunch. Developments that in the end left the S&P 500 a tad softer while US treasury yields and the dollar held steady.

Commodities

A lot of action was once again seen in commodities with the Bloomberg Commodity spot index hit rising 3% to hit another decade high. Just like the previous week, some of the biggest movers were found in energy led by natural gas, crude oil and diesel. Precious metals found a fresh bid but apart from energy the biggest movers were found in agriculture where strong gains were seen in soybean oil (fuel link), wheat, cocoa and not least cotton.

In response to these continued bullish developments, hedge funds increase their net long positions across 24 major commodity futures markets by 5% to a four-week high at 2,08 million lots, with the increase spread out across all sectors with copper and platinum-group metals being the exceptions.

Energy: Buying of crude oil extended to a sixth week with the WTI and Brent net long rising by 22k lots to a 12-week high at 649k lots. The diesel (NY Harbor ULSD) long jumped to a three-year high at 48k lots while length in natural gas continued to be reduced despite seeing the price surge higher by 7.3%. 

Latest from our Daily Market Quick Take: Crude oil has started the week on a strong footing as the global power crunch continues to raise expectations for higher gas-to-oil switching demand at a time where OPECmaintains its modest pace of monthly oil production increases. Saudi Aramco estimates the gas shortage has already lifted oil demand by an additional 0.5m barrels/day. Coal futures in China surged 8% overnight after torrential rain and landslides halted some production at mines in the Shanxi province, the nation's top producing region, thereby adding further support to global fuel prices, including crude. Monthly oil market reports on tap this week, starting with OPEC on Wednesday and followed by the IEA on ThursdayWith WTI already trading at seven-year high, Brent may now target the 2018 high at $86.74.

Metals: Hedge funds had another go at trading precious metals from the long side with the gold net long rising by 61% to 67.8k lots, and the silver long by 1k to 4.6k lots. In general the exposure in both metals remain weak given the two metals current struggle to muster a rally during times of price supportive developments, only to fall back on price negative news. Copper also remains an under owned metal following many months of sideways trading while only small changes were seen in the two shorted metals of platinum and palladium.

Agriculture: Speculators resumed selling in soybeans with the net long falling by 9.9k lots to 49.5k, a fourteen-month low, and during the past year the net long has now collapsed by 80%. Soybean oil meanwhile received buying attention given its fuel link. Small buying of corn while the CBOT wheat position flipped back to a net long, a development that has been seen four times during the past year and it reflects how speculators struggle to build consensus for this key crop. In softs, the cocoa long jumped 226% to 31k lots after the price surged by 8%. Cotton's 9% rally to a fresh multi-year high supported a 2% increase to 96.7k lots, highest since May 2018. Coffee net buying continued (+6% to 45.6k) despite negative price action during the reporting week. 

Forex:

The dollar long against ten IMM currency futures and the Dollar Index jumped 43% or $7.7 billion to $25.6 billion and is now the largest since June 2019. The greenback was bought against all currency futures except JPY, and speculators now hold net short positions in all pairs except NZD. Selling was concentrated in EUR (23.2k) with speculators going short for the first time since last spring. However, at 22k lots the short remains well above the 114k lots short seen during the early stages of the Covid-19 panic in February last year.

Interesting to note that the aggressive dollar buying occurred during a week where the Bloomberg Dollar Index traded unchanged with weakness in EUR being offset by strength in all the other major crosses, especially GBP, CAD and AUD.

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