Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Head of Commodity Strategy
Summary: Hedge funds were net-buyers of commodities for a second week to March 31. This despite weak price action as the demand outlook continued to deteriorate with countries representing +90% of global GDP experiencing different levels of lock downs. The period tracked the aftermath of the March 23 announcement of open ended QE by the US Federal Reserve and a week where crude oil hit an 18 year low.
Saxo Bank publishes two 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 24 major commodity futures up until last Tuesday, March 31. This period tracked the aftermath of the March 23 announcement of ‘open ended’ QE by the US Federal Reserve. Stocks rose, credit recovered, the dollar weakened while crude oil hit an 18-year low. Most commodities traded weaker as the demand outlook continued to deteriorate with countries representing +90% of global GDP experiencing different levels of lock downs.
Funds nevertheless increased bullish for a second week by 20% to 433k lots. This despite seeing a 5.5% drop in the Bloomberg Commodity Index. Buying was concentrated in natural gas, which hit neutral despite slumping to a 25-year low, soybeans and wheat while gold, sugar and cocoa saw most of the selling.
Energy: Crude oil selling slowed as the price hit an 18 year low. The combined net long was cut by just 4k lots to 183k lots, the lowest since 2012. Behind the small net change however was some major changes in the long (+32k lots) and short (+36k lots) positions. New longs emerged on hopes that the price collapse would force renewed production cuts.
Metals: Profit taking cut the gold long to near the lowest since last June while short covering supported a 19% increase in the silver long. The reduction in HG copper short positions extended into a seventh week. The price has settled into a relative tight $2.15 to $2.25 range with a recovering China, government stimulus and virus-led supply disruptions off-setting a global recession and slowdown in demand.
Agriculture: The sector was mixed with the pandemic having a negative impact on sugar (biofuel link to oil), cotton (collapsing clothes sale and lower prices on oil based synthetic fibers) and cocoa due to the emerging recession. Wheat, coffee and soybeans all finding support from either supply disruptions or rising demand.
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)