COT: COT: COT:

COT: Buyers return to metals as dollar sags

Ole Hansen

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 up until last Tuesday, May 24. A week where risk sentiment once again deteriorated on worries that aggressive moves to curb inflation might drive the US economy towards a recession. Bond yields and the dollar both traded lower in response to these developments, thereby inadvertently supporting the commodity sector where gains were led by energy as well as industrial and precious metals.


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, May 24. A week where risk sentiment in the stock market deteriorated once again on worries that aggressive moves to curb inflation might tip the US economy into recession. This after recent economic data and corporate earnings pointed to a degree of macroeconomic deterioration. Bond yields and the dollar both traded lower in response to these developments which drove down the S&P 500 by 3.6% on the week. Thereby inadvertently supporting the commodity sector where gains were led by energy as well as the industrial and precious metal sectors.  

Latest across market updates, including crude oil and gold, can be found in our daily Financial Market Quick Take here

Commodities

The Bloomberg Commodity Spot index traded a tad higher and not far below the April 18 record peak. Gains were led by precious and industrial metals, the energy sector took a breather while broad losses were seen across the agricultural sector led by corn, wheat, coffee and cotton. 

Speculators responded to these developments by adding length to a handful of commodities led by gold, brent crude, soybeans and sugar while a broad range saw reduction led by WTI crude oil, fuel oil products, corn, cocoa and livestock.

Energy: The energy was mixed with net buying of Brent, being partly offset by long liquidation in WTI crude oil. In addition, all three fuel products saw net selling as a pickup in refinery activity following maintenance triggered some price weakness and profit taking. Overall the combined crude oil net long rose for a second week to reach 473k lots, a three-month high.

Metals: Precious metals ended up being the best performing sectorduring the reporting week as lower bond yields and a weaker dollar supported a strong bounce in gold. The 2.5% rally supported a 42% increase in the net long position to 77.5k lots, still a much-depleted position compared with the March peak at 176k lots. Copper was bought for a second week as speculators continued to pair back short positions. Overall, a net short position of 11k lots has become a major tailwind for the bulls as the demand outlook in China improves as anti-virus measures are reduced.

Agriculture: The grain sector has now seen a net reduction in bullish bets in four out of the last five weeks. Selling was led by corn and wheat while the soybean complex was mixed. Since 2010 the total net long across the six major grain futures has only reached above 800,000 lots on four occasions, and based on the previous three, that milestone subsequently triggered a major market correction and position adjustments. Whether the same can happen at this juncture remains to be seen and will most likely depend on weather developments and whether a corridor can be arranged so that Ukraine can ship out stranded stocks of wheat and corn. 

Sharp price corrections in coffee and cotton supported long liquidations while the cocoa position flipped back to a net short for the first time in four months.

Forex

Speculators cut bullish dollar bets by 9% to $21 billion, a four-week low. Driven by a near doubling of the EURUSD long as speculators added length for a fourth consecutive week. During this time, they bought €5.7 billion, and so far, their search for a peak in the dollar has been successful with the EURUSD trading at a five-week high at €1.076 after finding support below €1.04. Flows among the other IMM currency futures were mixed with selling of GBP lifting the net short to 32-month high, CHF, AUD and NZD being partly offset by demand for JPY and CAD. 

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

 

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 is not intended to and does not change or expand on this. 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-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.