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, December 6. A week that saw continued selling of the dollar as speculators increasingly favored the euro, and lower bond yields on concerns about the economic growth outlook. The commodity sector had a mixed week with growth worries sending the energy sector down while the metal sector was supported by China reopening hopes
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:
Ahead of year-end the open interest across 21 major commodity futures holds near an eight year low at 12.9 million lots. The year-to-date change shows a 13% reduction in energy to 6.14 million, a 6% reduction in agriculture to 5.75 million, and a 9% reduction in metals to 0.97 million. Speculators meanwhile hold a 622,000 lots net long which is down 39% from the beginning of the year.
Money managers lifted the COMEX gold net long by 34% to 37.6k lots, primarily driven by fresh longs being added. The copper long jumped 25% to 16k lots while only small changes were seen in silver and platinum
Overall the total net long across the grains sector which covers six soybeans and grain contracts, dropped by 35% to 156k lots, the lowest since August 2020 and down 73% from the March panic peak when the Bloomberg grains spot index hit a record high from where it has now fallen by more than 20%.
The reduction was led by corn where money managers responded to a 5% price drop by cutting the net long by 37% to 120k lots. Lowest bets on rising prices since September 202 and biggest one week reduction since March 2019. The wheat short hit a fresh 43 month high at -63.4k lots while speculators dumped a record 43k lots of soyoil during a week where the price tanked by 15%.
In softs, a fresh tumble in the price of Arabica coffee triggered a 17% jump in the net short to -22.5k lots, highest since July 2020. Elsewhere, the cocoa short was cut by 58% while cotton and sugar both saw net buying.
The breakdown shows the mention concentration of euro longs at $16.3 billion equivalent built up since late August while the bulk fo the short positions are held in JPY (-$6 billion), AUD (-$2.7 billion) and GBP (-$2.1 billion).
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.
