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 the week to Tuesday, September 13. A week that ended with the US CPI surprise which helped trigger renewed stock market weakness and bond yield strength while the commodity sector in general traded higher led by industrial linked metals and the grains sector.
This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to Tuesday, September 13. A week that ended with the US CPI surprise which helped trigger renewed stock market weakness and bond yield strength. The dollar traded softer led by gains in the euro and Swiss Franc while the commodity sector generally traded higher led by the industrial metal and grain sectors.
Responding to these predominantly positive price performances, speculators increased bullish bets in 15 out of the 24 major commodity futures tracked in this by 70k lots to a 1.08 million. The bulk of the change being driven by short covering (49k lots) as opposed to fresh longs (21k lots), reflecting a market that remains concerned about the global economic outlook and its impact on demand for key commodities.
Crude oil’s current rangebound behavior was reflected in the limited changes seen in the overall net long. A week of small gains helped lift the net long in WTI and Brent crude by 13.4k lots to 341.5k lots and within the narrow 328k to 345k range seen during the past four weeks. The three fuel product contracts saw light net selling while the net short in natural gas rose 22% to 60k lots.
The sector saw an unusual strong amount of switching from gold to metals with an industrial link. The gold position flipped back to a net short of 11.3k lots, just a few hundred lots above a 40-month low, with additional selling likely to have been triggered by the technical break below $1680 that followed a couple of days later. The near 9% rally in silver from a two-year low helped trigger a 70% reduction in the net short to 17.1k while the platinum net short was cut in half to 9.3k lots while speculators turned the least negative on copper in three months after cutting their short by 61% to 4.4k lots.
The latest supply and demand (WASDE) update on September 12 together with concerns about the Ukraine grain deal helped support another week of buying across the grains sector with the combine long rising 10% to 492k lots. Especially the steep drop in soybeans ending stocks forecast by the US Department of Agriculture helped drive strong gains and net buying across the three soy contracts of beans, oil and meal. Corn was bought for a seventh week while wheat traders, despite a 5.3% rally maintained a net short in CBOT following a small reduction in the net short of less than 5%.
Softs were mixed with the sugar long getting a 75% boost to 30.5k while the cocoa net short jumped to a 2 ½-year high at 36.4k lots, this despite having trading sideways for the past three months, most of the time between $2300 and $2400 per tons. Global growth concerns helped trigger a second week of long liquidation in both coffee and cotton.
Speculators increased bullish dollar bets for a fourth week with the aggressive adding of fresh shorts in the yen (-22.5k) and sterling (-17.7k) being partly offset by significant and continued short-covering in the euro (+24.5k). Overall the dollar long against nine IMM currency futures and the Dollar index reached a six-week high at $21.3 billion.
During the last two reporting weeks which included the euro’s unsuccessful attempt to break lower through €0.99, the net short has seen a 75% reduction to a near three-month low at 11.8k on a combination of fresh longs and short positions being reduced.
A widening gap between FOMC and Bank of Japan policies helped weaken the Japanese yen by 1%, the result being a 39% increase in the net yen short to 80.7k lots, a 14-week 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 reasons why we focus primarily on the behavior of the highlighted groups are:
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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