Head of Commodity Strategy
Summary: Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, November 15. A week that saw markets respond, prematurely as it turned out, to market friendly FOMC and China Covid news. Developments that saw specs cut their dollar long to a 17-month low while rushing into precious and industrial metals. Elswhere crude oil and corn was sold while sugar buying hit a sweet spot.
The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.
Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)
The reasons why we focus primarily on the behavior of the highlighted groups are:
This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to Tuesday, November 15. A week that saw stock markets surge higher while the dollar and bond yields dropped on - as it turned out -premature speculation the FOMC was approaching peak hawkishness. China focused commodities, such as industrial metals received a boost on signs, again prematurely, that the government was easing its zero covid tolerance approach.
All developments that helped cut the speculative dollar long to a 17-month low while triggering a major round of speculative buying across precious and industrial metals, the latter partly explaining the correction currently seen across metals with the selling of recently established longs weighing on markets.
In softs, the 7% rally in sugar help drive a record 89k contract jump in the net long to 166k contracts. The Arabica coffee net short jumped by 1/3 and after four weeks of selling it reached a 28-month high at 19k contracts. Cocoa meanwhile flipped back to a net long while the cotton long received a 24% boost.
In forex, flows turned decisively against the dollar, a day before Fed Chair Powell delivered his hawkish comments which only managed to trigger some temporary dollar strength. Before this reporting week, the Greenback had increasingly been losing steam against several of the nine IMM forex futures tracked in this report. The bulk of the net dollar selling had up until recently been mostly against the euro which since late August has seen €19 billion of net buying, reversing the net position from a 48k lots short to a 106k long. This past week buying accelerated with the net long jumping 41% to a 17 month high. Combined with an aggressive 24% reduction in the JPY net short and a 250% jump in the MXN net long, the combined dollar long ended up being reduced by 59% to just $5 billion, the weakest belief in a stronger dollar since August last year.
Bond. Long Bond(s)
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.
Steen Jakobsen,
Chief Investment Officer
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.
Althea Spinozzi,
Senior Fixed Income Strategist
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.
Charu Chanana,
Market Strategist
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.
Peter Garnry,
Head of Equity Strategy
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.
Ole S. Hansen,
Head of Commodity Strategy
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.
Redmond Wong,
Market Strategist
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.
Peter Siks,
Investment Coach
