Head of Commodity Strategy
Summary: Hedge funds were buyers of key commodities for a third week with the biggest changes seen in cocoa, feeder cattle and not least gold which reached a fresh record long.
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.
Hedge funds bought commodities for a third week with the combined long across 24 major futures contracts reaching 353k lots, from a record low of 38k just three weeks ago. During this time all three sectors have seen net-buying with short-covering in natural gas being the main contributor.
Biggest movers on a relative scale last week were buying of cocoa, feeder cattle and gold. The latter reached a new record of 292k lots with the additional buying of 30k lots representing a notional value of $4.6 billion.
Both crude oil contacts were sold as the risk premium following the Saudi Aramco attacks continued to deflate and the focus returned to the trade war and the risk to global growth and demand. The combined net-long in WTI and Brent dropped below pre-attack levels to 468k lots. Biggest change was a one-third jump in WTI short selling.
Gold’s (failed) breakout last Tuesday helped attract a record open interest in COMEX futures and a 30k lots jump in the speculative net-long to a new record of 292k lots. The subsequent failure to hold onto those gains as the dollar rallied sent it looking for support once again at the key $1485/oz. level.
Silver was sold despite finishing the reporting week 2.7% higher. The net-long was cut to a five-week low with two major corrections during September having sapped demand for this volatile and sometimes low liquidity contract.
The agriculture sector witnessed another week of short covering which primarily benefited soybeans, corn, sugar and cocoa. The net position in cocoa flipped to a small net-long in response to a 14% rally in recent weeks amid signs of ebbing supplies from Ivory Coast and Ghana. A record short position in sugar was squeezed as the sweetener broke higher in anticipation of lower production due to recent flooding in one of India’s key growing regions.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
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.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
