Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Head of Commodity Strategy
Summary: The Commitments of Traders reports highlight speculators positions and changes made during the week to October 13 in FX, bonds and stocks. A week where dollar short covering continued despite a softer Greenback. A furious rally in big tech lifted stocks to a six week high while bond yields held steady with rising breakevens being offset by falling real yields.
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in 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 speculators in forex, bonds and stocks up until last Tuesday, October 13.
A week where a furious rally in big tech helped lift U.S. stocks to the highest in almost six weeks. Also in focus was the beginning of the earnings season as well as the ebb and flow of news regarding a fresh round of U.S. stimulus. The S&P 500 rose 4.5%, bond yields held steady with rising breakevens being offset by lower real yields.
Despite trading softer, speculators bought dollars for a seventh consecutive week as hopes for a U.S. stimulus package ebbed and flowed and the number of Covid-19 cases in Europe continued to rise while the timing of a vaccine continued to be pushed back. Against ten IMM currency futures and the Dollar Index, the dollar short was reduced by 5% to $27.6 billion.
The two main contributors being euro long liquidation and a 64% reduction in the Aussie dollar long. Elsewhere the Dollar Index position turned net long for the first time since June
The reflation trade continued to gain momentum during a week where steady yields on U.S. 10-year and 30-year bonds hid a rise in breakevens and lower real yields. In response to this the leveraged fund net short in U.S. T-Bonds reached a new record of 439,395 lots.
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