Head of Commodity Strategy
Summary: The Commitments of Traders report covering positions held and changes made by money managers in the week to May 19 found that speculators maintained strong buying interest in energy and metals at the expense of the agriculture sector. Top three buys were WTI crude oil, natural gas and gold while selling was topped by corn, soybeans and wheat.
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.
The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, May 19. A week were the questionable Moderna vaccine promise and reduced lockdowns spurred continued demand for riskier assets. US stocks resumed their rally with the S&P 500 rising by 2.3% while bond yields traded softer and Dollar index lost 0.6%.
The Bloomberg Commodity Index jumped 2.7% to reach a one month high with all the major energy and metal futures posting strong gains. However, while the energy and metal sectors had a strong week the net-long across the 24 major commodity futures tracked in this was close to unchanged due continued selling of most agriculture commodities.
Energy: Another strong rally in crude oil saw the combine net long in WTI and Brent rise by 26k lots to 507k lots, a 16-week high. Seven consecutive weeks of buying has resulted in bullish WTI bets rising almost three-fold to 348k, a 20-month high, while Brent buyers have only added 102k lots to 158k. While not yet overly stretched, the amount of buying has left the market exposed should the technical and/or fundamental outlook turn less friendly. Buying interest in Brent has been much more muted.
Following a four-week rally WTI crude oil has temporarily been boxed in between resistance at $35.20/bbl, the April high and support at $30.75/bbl, the uptrend from the lows. How the market handle these two levels will give us a clue about the current strength of sentiment in the market.
Buyers returned to natural gas following the recent slump. The 6.4% price jump attracted 24k lots of fresh longs resulting in the net long rising to 136k lots.
Metals: Silver’s 14% surge helped drive a 54% increase in the net-long to 21k lots, the highest since March 17. Gold investors meanwhile continued to flock to bullion-backed ETFs while funds only added 12.3k lots to their futures net-long. Despite hitting a fresh multi-year high on escalating tensions between US and China, and the potential for further stimulus, the net-long at 173k lots remained close to an 11-month low.
Copper traders was the least bearish since January as the price popped higher to reach a two-month high on China housing data and virus hopes. The net-short was cut by 26% to 9.7k lots.
Agriculture: Broad selling of food commodities continued with just four out of 13 futures contracts being bought. All the three major crops were sold, not least corn which saw a 15% increase in the net-short to 245k lots, a one-year high. One of the few exceptions was sugar as the continued rally in crude oil potentially could divert sugar canes back toward ethanol production instead of the sweetener.
2024: The wasted year
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.
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.
