Head of Commodity Strategy
Summary: Leveraged funds increased bullish commodity bets by the most in seven months during the week to October 2. Buying was led by natural gas, soybeans, corn and coffee with the exceptions being wheat, sugar, cocoa and surprisingly crude oil.
The most striking change in last week’s update was the net-selling seen in both Brent and WTI crude. Despite all the talk about supply shortages and $100/b before year end, leveraged funds instead chose to reduce exposure. The combine net-long in Brent and WTI crude oil was cut by 27,855 lots on a combination of longs being reduced and new shorts being added.
The net-long in WTI crude oil dropped to a 15-week low as the prompt spread declined to the lowest since June. A sign of rising crude oil supplies within the US as refinery demands drop and Chinese demand dries up.
The natural gas long, which comprises four different Henry Hub deliverable contracts, jumped by 45% in response to a continued rally above $3/MMBtu. A rally that lasted until Thursday when a bigger-than-expected stock increase helped trigger some profit taking.
All metals with the exception HG copper were bought with gold and silver beginning to show signs of immunity from the stronger dollar and rising bond yields.
Strong buying of the soybean complex and corn helped drive a 44% reduction in the grains sector net-short.
In soft commodities, the coffee net-short was cut by 12% as the up until recently under siege bean continued to recover from a 12-year low. In cocoa the net-short doubled to reach a one-year high.
General note:
The reasons why we focus primarily on the behaviour of leveraged 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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As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
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