Head of Commodity Strategy
Summary: The COT report covering the week to December 3 found speculators selling pro-cyclical and trade war impacted commodities. This after Trump blurted a trade deal could be delayed until after the November US Presidential election. Hardest hit were crude oil, natural gas, copper and soybeans while gold, corn, sugar and wheat were bought
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.
Hedge funds were aggressive sellers of pro-cyclical and trade war impacted commodities during the week to December 3. This after Trump blurted a trade deal could be delayed until after the November US Presidential election. Hardest hit were crude oil, natural gas, copper and soybeans while gold, corn, sugar and wheat were bought. Overall the combined net long across the 24 major commodity futures tracked in this dropped by 153k lots to 555k lots.
Heavy selling hit the energy sector as crude oil gyrated in a wide range ahead of Friday’s OPEC+ meeting. A meeting which controlled by the Saudis ended up being a major exercise in trying to support crude oil and with that a $2 trillion Aramco valuation. This after the Saudis on top of an agreed group reduction of 500k b/d surprised the market with an additional voluntary cut of 400k b/d. While providing a floor under the market further upside now hinges on whether Iraq and others will implement the necessary cuts to comply with their new quotas.
The combined net-long in WTI and Brent was cut by 66k lots after funds added 103k lots the previous week.
Natural gas, down another 4% this Monday, has been left ill prepared for any extreme cold snap over the coming weeks. Following the worst November price action in 18 years the net-short across four Henry Hub deliverable contracts reached a seasonal record high last Tuesday of 214k lots.
Gold was bought as the market challenged resistance at $1480/oz. A level that subsequently failed to hold as the market continued to pump and dump on trade and economic data news. The net long rose by 10% to 227k, some 22% below the October record.
Long liquidation cut the silver long by 8% while copper short selling extended to a fourth consecutive week. This before breaking and closing above its 200-day moving average on Friday following the strong US job report.
During the past five weeks funds have reversed their soybeans position from a 72k lots long to a 99k lots short. This is in response to a 10% price drop during this time as demand worries lingered. Especially from China which will soon have alternative sources of supply as the South American harvest moves closer.
Surging coffee prices saw the net-long extend to a three year high at 14k lots. Tightening fundamentals have cut in half the contango which for the past few years helped make coffee one of the most attractive hedge fund short positions to hold.
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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.
