Head of Commodity Strategy
Summary: Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during an extended reporting week to Tuesday, July 11. A week that saw stocks trade lower while continued dollar weakness was seen in the run up to last Wednesday’s lower than expected US inflation print. The 1% drop in the broad Bloomberg Dollar index supported a strong week in commodities, and with tightening supply of crude oil a key focus, hedge funds increased their crude and fuel exposure by one-third to a three-month high
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 main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's are:
Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.
This summary highlights futures positions and changes made by hedge funds across commodities and forex during an extended reporting week to last Tuesday, July 11. A week that saw stocks trade lower while continued dollar weakness was seen in the run up to last Wednesday’s lower than expected US inflation print. The 1% drop in the broad Bloomberg Dollar index supported a strong week in commodities, primarily driven by the energy sector while the bond market was mixed buying of 2’s and selling of 10’s driving an 18-basis point steepening of the curve.
In the extended reporting week from July 3 to 11, the Bloomberg Commodity Index traded up 1.8% with broad gains being led by a surging energy sector on tight supply focus, and together with small gains in precious metals, grains, and livestock they more than offset small losses in industrial metals and softs. On an individual basis 19 out of the 24 major commodity futures tracked in this report traded higher, with the highflyers being crude oil and fuel products rising by around 7%, and followed by PGM’s (Platinum Group Metals), corn, wheat and hogs.
Responding to these developments the overall net long held by hedge funds rose 104k contracts to 1.097 million contracts, a three-week high, with strong net buying of energy (135k contracts) and livestock (15k) being offset by net selling in metals (4k) and grains (40k)
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
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