COT: Deleveraging set the agenda ahead of U.S. election

Ole Hansen

Head of Commodity Strategy

Summary:  This summary highlights positions and changes made by speculators such as hedge funds and CTA's across commodities and forex futures and options up until last Tuesday, November 3, the day of the U.S. election. The run up to the long awaited event triggered an elevated level of uncertainty which saw stocks and commodities trade lower while volatility and the dollar rose. All developments that reversed sharply after Tuesday as the market kicked off its current Everything Up, dollar down move


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 and forex up until last Tuesday, November 3, the day of the U.S. election. The elevated level of uncertainty in the week leading up to the election saw the S&P 500 drop by 0.6% as the VIX rose 2.2%. The Bloomberg Dollar Index meanwhile added 0.5% while the yield on U.S. 10-year notes rose by 13 basis points. All of these price developments saw sharp reversals after Wednesday as the Everything Up rally (apart from the U.S. dollar) took hold.

The Bloomberg Commodity Index dropped by 1.8% in the week to November 3 with lower prices seen in all but a few of the 24 major futures contracts tracked in this update. Overall the combined net-long, which the previous week reached a the highest since February 2017, was cut by 9% to 2.07 million lots.

The bulk of the reduction was seen in energy where the combined long in WTI (-34k lots) and Brent (-50k lots) was cut by 19% to 358k lots, a six months low. This in response to U.S. election jitters, rising Libyan production and not least the continued surge in Covid-19 cases hurting fuel demand, especially in Europe and the U.S.

All the five metal contracts, led by gold and copper, were all sold. The 7% reduction in the gold long took the net back down to 122k lots and near the lowest level in 17 months. The HG copper net-long was reduced for a second week but still close to a two-year high. The platinum position flipped back to a net short while the silver net long at 41.4k lots was close to unchanged.

The grain sector saw the first albeit very small weekly reduction in 12 weeks as the combined net-long across the six soy, corn and wheat contracts dropped by just 1% to 771k lots, still close to an eight-year high.

Finally all four soft commodities were also net sold with sugar, the recent highflyer, seeing the first reduction in seven weeks. In cocoa, 14.9k lots of selling flipped the net position back to a short for the first time since July.

The post U.S. election drop in the U.S. dollar and surging risk appetite would have seen many of these positions being re-established thereby adding further fuel to a renewed rally, especially across the metal sector as can be seen in the table below.

IMM Currencies

Despite rallying ahead of last week’s U.S. election, speculators still decided to cut bullish dollar bets as the general level of risk appetite suffered. The dollar short against ten IMM currency futures and the Dollar Index dropped by 10% to $23.7 billion, the lowest since July. Apart from JPY buying most other contracts saw net selling led by a 10% reduction in the euro long to 140k lots (€17.5 billion), a 15-week low.

What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

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.
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