Head of Commodity Strategy
Summary: From broad-based selling in previous weeks, as the economic outlook deteriorated, hedge funds last week turned to all out position reduction. A record amount of long and short positions were closed as the dash-for-cash stampede took hold.
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, March 17. During this period deleveraging and the dash-for-cash hit a fresh peak. The dramatic reduction in exposure, both long and short, was seen across all asset classes, not just commodities.
Hedge funds reduced long and short positions by a record 1 million lots during reporting week. As deleveraging accelerated the appetite for chasing the markets suffered. This is highlighted in the report with the broad based sell-off attraction short-covering instead of the fresh selling. Brent crude with its terrible demand outlook was the exception.
The extend to which deleveraging drove the market action during the reporting week is clear to see from the below chart. Gross long and short positions were reduced by a more than 1 million lots, some 400k lots above the previous one-week reduction record.
Crude oil positions diverged for a second week as the WTI net-long rose by 9k lots while Brent saw a 75k lots reduction to 79k lots, the lowest since November 2014.
The usual tight trading correlation between WTI and Brent has temporarily broken down with daily price swings of more than 10% and volatility close to 200%.
Brent is the contract that best reflects the global demand shock and the challenge it is to swallow all the additional supply from Russia and the Middle East over the coming months. The WTI contract was net bought last week, probably in response to speculation that the US would support the domestic market. It helped reduce WTI's long-held discount to Brent, so much that it temporarily disappeared before widening again to the current$3.2/b.
While gross long positions in both were reduced amid the 22% sell-off, the WTI gross short was cut by 28k lots while 30k lots were added to Brent. Overall the combined net-long dropped to 202k lots, a level this low last seen in December 2012.
The gold long was cut by 31% to 177k lots, a nine-month low, while silvers collapse to a near decade low reduced the net-long by a relative small 20%. This after short-sellers cut positions instead of adding into the weakness. HG Copper was another example of the lack of risk appetite. Instead of attracting fresh selling on the break below key support the net short was in fact reduced by 1k lots
The end of the road
Emboldened by surging crude oil prices, Saudi Arabia makes waves on the international stage, as Crown Prince Mohammed bin Salman manages to create a World Champions League, after buying the UEFA Champion League franchise.
As the world embraces GLP-1 obesity wonder drugs, the people next in line to get a prescription stop caring about dieting and exercising, figuring that the drug will later solve all of their weight-related health problems.
With the US budget deficit spiraling above 10% of the GDP, the government is desperate to foster demand for US Treasuries. Under intense pressure from the White House, Congress makes income from government bonds tax-free.
After a criminal group deploys the most deceptive AI deepfake ever seen, generative AI becomes a national security threat. With public distrust soaring, governments crack down with harsh new laws, puncturing the AI hype.
To fix the divergence in the global trade and financial system, the largest deficit countries unite to negotiate new world trade terms. For surplus countries, the reset of the global economic model is a painful adjustment.
As discontent with Biden and Trump rises to fever pitch, Robert F. Kennedy Jr sees his support rising inexorably in the polls. On November 5, Kennedy wins the US presidential election, ushering in a new era in US politics.
Stepping up Japan's economic transformation in 2024, PM Kishida brings in a host of populist policies to boost domestic demand. As the GDP growth rate hits 7%, the BoJ is forced to abandons its yield curve control policy.
As people wake up to how little tax Europe’s billionaires are actually paying, the EU Commission implements a wealth tax of 2%. The tax sends shockwaves through Europe's luxury industry, with luxury giant LVMH plunging 40%.
