Summary: Hedge funds cut bullish bets on commodities by 18% to 457k lots. While gold, silver, copper and grains were sold as the dollar rose, the oil long expanded further in response to the US decision not to extend waivers to the ban on Iranian oil.
Saxo Bank publishes two 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.
To download your copy of the Commitment of Traders: Commodity report for the week ending April 23, click here.
The Brent and WTI combined long reached 711k lots, the highest since October 9 last year. Some 117k lots have been added since Brent broke above $70/b and despite supportive fundamentals, a short-term deterioration in the technical outlook following Friday’s ugly close could now leave some recently established longs at risk. Also noting a very elevated long/short ratio in RBOB Gasoline at 35.
Gold’s net-short expanded further to reach 22k lots, the highest since November 27. The slump below support at $1,275/oz last Tuesday attracted additional momentum sellers before the strong recovery into the weekend. At this stage it would probably require a continued rally back above $1,300 before short positions capitulate once again.
Copper traders reacted to the stronger dollar by once again reversing their net positions to a short of 7k lots, the most bearish in nine weeks.
The record short across the three major crops of corn, wheat and soybeans expanded further to reach 520k lots. Most dramatic is the 322k lots record short in corn followed by 130k lots in soybeans, also a record. With such an elevated and one-sided position these shorts will increasingly be exposed to any short-term change in the technical and/or fundamental outlook.
The livestock sector has been left exposed to long liquidation after recent weeks of strong buying. Sharp reversals in the prices of live cattle and lean hogs helped drive a 7% five-day slump in the Bloomberg Livestock index last week.
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.
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.
The road to a bond bull market is paved, although challenges remain
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.
FX: King dollar and its far-reaching repercussions
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.
Equities: Higher cost of capital is getting painful
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.
Commodity sector supported by peak rates, tight supply focus
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.
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.
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.
The Saxo 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 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 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 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 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 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.
None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.
X
Your browser cannot display this website correctly.
Our website is optimised to be browsed by a system running iOS 9.X and on desktop IE 10 or newer. If you are using an older system or browser, the website may look strange. To improve your experience on our site, please update your browser or system.