COT: Speculators abandon agriculture and PGMs

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, September 14. A week that saw continued weakness in stocks raising the question of whether we are at the cusp of a long awaited correction. Risk adversity gave the dollar a small boost while yields traded softer. Commodity speculators responded to these developments by cutting exposure across most markets with crude oil, copper and gold being the few exceptions


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 and financials up until last Tuesday, September 14. A week that saw continued weakness in stocks raising the question of whether we are at the cusp of a long awaited correction, or whether it was once again third-week weakness in the run up to monthly options expiries. On Friday the S&P 500 closed below its 50-day SMA for the first time in three months with eyes this week on the FOMC meeting and China, and how the government will handle the Evergrande crisis which has payments due on two notes this coming Thursday.

Emerging risk aversity during the reporting week supported a small bid in the dollar while lower-than-expected CPI helped support a 10 basis point drop in US ten-year notes. 

Commodities

The Bloomberg Commodity Spot index hit a fresh ten-year high led by surging natural gas prices together with strength in crude oil, copper and gold. However, despite net-buying of these by hedge funds, the net speculative length across 24 major futures fell to near a one-year low driven by continued selling across the agriculture sector and investors dumping platinum-group metals (PGM).

Energy: Money managers increased their crude oil exposure in WTI and Brent for a third week by a total of 44k lots to a six-week high at 595k lots. With the bulk of the increase being driven by fresh longs, and only a limited amount of short covering, the risk of a short-term price pull back has emerged. Losses have accelerated this Monday as crude oil trades lower in response to China demand worries, a continued recovery in US production and a stronger dollar ahead of this week's FOMC meeting sapping investor demand. Last week the rally was halted at $76, the July 29 highand more importantly it has raised the question whether current and improving fundamentals are strong enough to warrant a push abovetrendline resistance from the 2008 record peak, currently at $77. We don’t believe they are, therefore, leaving the market at risk of a short-term pull back, initially towards the 21-day moving average $72.75.

Natural gas which jumped by 15% during the week to reach a 7-year high did not see any fresh buying with surging volatility instead forcing traders to cut exposure. The reduction in both long and short positions left the net across four Henry Hub deliverable swap and futures contracts down 1,213 lots to 263k lots. 

MetalsBiggest changes hit the Platinum Group Metals, which in response to an ongoing semiconductor chip shortage in the automobile industry has witnessed a change in the short-term demand outlook. Adding to this, the often poor liquidity in these minor metals, and the result was a 16% slump in palladium and 6% drop in platinum during the reporting week. Speculators acted accordingly be flipping their palladium position to a net short for only the second time since at least 2009 while an existing platinum short increase by 130% to 16k lots, now the biggest in terms of lots and notional value across the 24 major markets tracked in this report. 

Ahead of Thursday's sell of in gold and silver speculators had responded to the recovery from the August slump by adding a small amount of gold length while in silver they reversed course and cut longs by 21%. The HG copper long meanwhile reached a six-week high. 

Latest: Gold dropped to a five-week low overnight with treasury yields rising otapejitters ahead of Wednesday’s FOMC meeting, and as the dollar received a haven bid following another day of stock market losses led by Hong Kong and its troubled property sector. The short-term question is whether investors, despite taper angst, will return to bonds as they seek a safe harbor while the stock market correction potentially gathers pace. Hardest hit has been silver and platinum, both overnight touching their lowest levels since November, with the economic growth outlook challenged on multiple fronts. Not least in China where iron ore, a key input to its steel industry has more than halved in just a few months, and overnight in Singapore it slumped an additional 9% to $93 as China steps up restrictions on industrial activity in some provinces. 

 Agriculture: The grains sector saw continued broad selling despite an unchanged Bloomberg Commodity Grains index. The soybean long reached a 13-month low, corn a nine-week low while the wheat position flipped back to a net short. 

A similar picture was seen in soft commodities with the exception being cotton where a 15 week non-stop buying spree saw the net long reached a 40-month high at 92k lots. Combined with news on Friday that top shipper US sees global sales cooling down helped send the price below key support, thereby raising the risk we have entered a period of long liquidation and lower prices. 

Forex

A week of general risk reduction where both short and long positions got reduced, resulted in a second week of net dollar selling. Against ten IMM currency futures and the Dollar index, the combined dollar long was reduced by 7% to $11.4 billion. The outlier of the week being sterling which flipped back to a net long after speculators bought a net 29k lots, the equivalent of $2.5 billion, other currencies seeing net buying was euro and yen. Reducing the overall negative impact on the net dollar position, was selling of CAD, CHF and not least the Aussie dollar, which is now challenging the yen as the biggest short position. 

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

 

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

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
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 is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo 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 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