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Summary: The CFTC’s COT reporting has finally caught up following the delays that occurred following the December to January US government shutdown. Below we highlight the latest movements across forex, bonds and stock index futures in the week to March 5.
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: Forex report for the week ending March 5, click here.
To download your copy of the Commitment of Traders: Financials report for the week ending March 5, click here.
Hedge funds and other large speculators increased their dollar long against nine IMM currency futures by $2.1 to $25.5 billion. We are still some 20% below the multi-year high of $32.2bn reached back in early December.
The main driver behind renewed dollar buying is the euro, which has seen continued selling since early January. Last week the net-short reached 78k lots (almost €10bn) just before EURUSD slumped to a 20-month low last Thursday, Speculators remain short most major currency pairs with MXN being the major exception, not least due to a three-month implied forward yield of more than 8% against the dollar.
Fixed income and stocks
In fixed income, leveraged funds have continued to increase bets on rising bond yields. While asset managers have been buying, leveraged funds are currently holding short positions in every maturity from two-year to Ultra bonds.
The exception is three-month Eurodollars, where continued buying since December has taken the net-long to the highest since November 2015.
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.
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.
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