Head of Commodity Strategy
Summary: COT on commodities in week to October 15 showed continued demand for agriculture futures with trade talks and weather in focus. Biggest casualties were oil, natural gas, gold, silver and coffee.
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.
In the week to October 15 hedge funds continued to cover short positions across the agriculture sector in response to U.S. - China trade talk hopes and emerging weather concerns in North and South America. Both energy and metals, led by oil, natural gas and gold were sold and this left the combined net-long across 24 major commodity futures higher by 30% to 270k lots.
Major changes on a relative basis were selling of coffee together with buying of soybeans and cotton.
Crude oil continued to be sold with the combined net-long in WTI and Brent falling by 11.5k lots to 290k lots, a nine-months low. The outlook for crude oil, not least WTI has weakened due to the seasonal rise in crude stocks and plunge in refinery activity. The recent spike in the cost of transporting crude oil due to U.S. sanctions against China’s COSCO (now easing) also helped temporarily cutting U.S. exports. Overall, we maintain the view that the weak global growth outlook is likely to keep crude oil range-bound around $55/b on WTI and $60/b on Brent.
Funds cut bullish gold and silver bets by 12% to 220k and 42k lots respectively, both a three-months low. Range bound gold trading since early August around $1500/oz has sapped interest at a time where stocks have recovered and bond yields have reversed higher. With these developments in mind gold has done very well in avoiding a bigger correction, potentially supported by emerging dollar weakness.
Silver remains stuck mid range between $17/oz and $18/oz while copper also stuck witnessed some light short covering.
Speculators were strong buyers of grain and oil seeds futures. This in response to the potential for a narrow U.S. – China trade deal driving a pickup in Chinese demand. Weather worries also supported the sector with the current slow U.S. harvest progress leaving crops in the ground exposed to the approaching cold season.
Soybeans saw the biggest amount of buying with the net-long rising to 49k lots, a 16-months high. Corn was next with 25k lots of buying cutting the net short to 66k lots, the least bearish in eight weeks.
2024: The wasted year
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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.
