COT: Copper and grains led fund reduction in commodities COT: Copper and grains led fund reduction in commodities COT: Copper and grains led fund reduction in commodities

COT: Copper and grains led fund reduction in commodities

Ole Hansen

Head of Commodity Strategy

Summary:  Futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, May 25. A week where a steady dollar, near a four-month low, and lower bond yields, led by reduced inflation expectations helped send volatility down and stock markets higher. The reporting week also caught the impact of the recent correction in commodities, especially in metals and grains.


Saxo Bank publishes 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 commodities, forex and financials up until last Tuesday, May 25. A week where a steady dollar near a four-month low, and lower bond yields, led by deduced inflation expectations helped send volatility down and stock markets higher. The reporting week also caught the backend of the recent correction in commodities, primarily due weaker industrial metals on Chinese intervention fears and a sharp correction in grains.

Commodities

The Bloomberg Commodity index dropped 1.9% during the reporting week to last Tuesday, with heavy losses in industrial metals (-4.2%) and grains (-5.2%) offsetting continued gains in precious metals and livestock. In response to these developments, hedge funds cut bullish bets across 24 futures contracts by 6% to 2,286k lots, a six-week low. With the exception of gold and WTI crude oil selling was broad with the biggest reductions seen in natural gas, Brent crude oil, HG copper, soybeans and corn

Energy: Speculators bought WTI crude oil (+18k lots) and sold Brent (-27.5) thereby leaving the combined net down 9.5k lots on the week at 624k lots, the lowest since January. The increase in WTI bets was driven by a rising US fuel demand ahead of the Memorial Day weekend that kicks of the country’s summer driving season, the lowest gasoline stockpiles in almost three decades together with crude stockpiles at Cushing, the WTI delivery hub, some 17% below the five-year average. Brent, the global benchmark, meanwhile saw net selling due to the risk of rising Iranian production together with virus outbreaks in Asia curbing demand.

Latest: Crude oil futures led by WTI (OILUSJUL21) remain supported as the U.S. summer driving season begin, while Brent (OILUKAUG21) continues to struggle breaking above $70 ahead of another round of Iran nuclear negotiations and Tuesday’s OPEC+ meeting where the group is expected to confirm an already agreed 0.8 million barrels per day increase for JulyUntil the market receives more clarity about the outcome of these, the upside potential beyond the March high at $71.40 seems limited.

Agriculture: The grains sector suffered another week of big price corrections and reductions in bullish bets. Led by soybeans, corn and to a lesser extent wheat, the combined net-long dropped 10% to a seven-month low at 412k lots, with the CBOT wheat position once again returning to almost flat.

Metals: Gold buying extended into a fourth week with the net long rising by 20k lots to a four-month high at 126.9k. It is worth noting that most of last weeks change was driven by a 27% reduction in the gross short position to the lowest since last July. Another sign that long term trend systems, the largest position holders in the trend system universe, continue to scale back short positions, thereby providing a constant bid in the market. Especially after the price broke the downtrend from the August high and after the price recently recovered back above its 200-day moving average.

Bullish HG Copper bets meanwhile slumped 35% to 33.9k lots, the smallest bet on rising prices since last July. The main culprit behind the reduction and copper’s recent 9% correction being China’s attempt to curb commodity prices and hoarding in the domestic market. An attempt both Goldman Sachs and Citigroup expect will fail due to the speed of the rebound in demand in advanced economies, particularly the U.S.

The current gold rally has left both platinum and silver trailing, and during the week both metals saw net selling, most noticeable being the 17% reduction in the platinum net long to a 5-1/2 month low at 14.6k.

Latest: Gold (XAUUSD) is heading for its biggest monthly gain since July as inflation remains the key focus, while Bitcoin at the same time is heading for its worst month since 2011. The recovery in ETF holdings backed by bullion and fund positions in futures remain subdued, a sign that many investors remain unconvinced about the short to medium term direction. However, Friday’s failed downside attempt could indicate that constant bidding and short covering from long term trend systems are ongoing. Focus this week on Friday’s job report and whether gold can break above $1923, the 61.8% retracement of the August to March correction. Key support at in the $1845-55 area.

Forex

In forex, the flow in the week to May 25 was skewed toward continued dollar selling as the Bloomberg Dollar Index came within a whisker of the January low before seeing a small recovery in the days that followed the reporting period. Following six weeks of continued selling the Greenback short against ten IMM currency futures and the Dollar Index reached a three month high at $16.8 billion. There was some small selling of AUD and CAD but overall buyers had the upper hand, notably in euro (4.1k lots or $0.6bn equivalent), sterling (5.8k or $0.5 billion) and CHF (3.1k or $0.3bn).

What is the Commitments of Traders report?

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:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

 

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.