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, April 11. A week that saw renewed dollar weakness and rising bond yields as the impact of last month’s banking crisis continued to fade. In commodities the total net long reached a seven-week high, with buying being concentrated in WTI crude oil, RBOB gasoline, natural gas, coffee, and cattle. On the sell side some profit taking emerged in gold, platinum, soybeans while the CBOT wheat short reached a fresh five-year high
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:
This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, April 11. A week that saw renewed dollar weakness and rising bond yields as the impact of last month’s banking crisis continued to fade, thereby triggering some profit taking across interest rate sensitive stocks. Ahead of key US economic data the commodity sector traded mixed with gains in energy and softs being offset by profit taking across the metal sectors.
The Bloomberg Commodity Index added 0.6% to trade higher for a third week as continued gains in energy, led by gasoline and natural gas, and broad gains in softs led by sugar and coffee more than offset consolidating among precious and industrial metals as well as grains. Overall, the net long across 24 major commodity futures rose by just 2% to 1.2 million lots, a seven-week high, with buying being concentrated in WTI crude oil, RBOB gasoline, natural gas, coffee, and cattle. On the sell side some profit taking emerged in gold, platinum, soybeans while the CBOT wheat short reached a fresh five-year high.
Crude oil: Buying of crude oil moderated following a massive buying spree in the previous week that followed the surprise OPEC+ production cut announcement. Having bought the biggest number of contracts or lots (136k or 136 million barrels) in a single week since December 2016, speculators turned more cautious. The WTI net long increased 22k lots on an equal combination of fresh longs and short covering. Brent meanwhile saw a small amount of net selling with long and short positions being adjusted lower.
Fuel Products: The ICE gas oil net long was reduced to a 30-month low at 17.3k lots while the RBOB Gasoline position received a 25% boost, driven by fresh longs as the price jumped 4.7%.
Gold: Following the strongest four-week buying spree since mid-2019 the yellow metal was exposed to a small amount of profit taking during the week as the price showed signs of consolidating around $2000. Having jumped by 121k lots (12.1 million ounces) in the previous four weeks, the net long was reduced by 7.4k lots to 137.6k lots, some 38k lots below last year’s peak around the time gold hit a $2070 record high.
Silver & Platinum: Profit taking reduced the net longs in both, but while the 262 lots reduction in silver was driven by interest both on the long and short side, platinum’s 36% reduction was driven by a combination of long liquidation and fresh short selling. This was before both metals surge higher in the days that followed, not least platinum where the discount to gold slumped to $955 on Friday from a recent peak at $1015. Despite a 6% year-to-date gain and an almost non-stop 25% rally during the past month, silver is not seeing the same interest from investors with the managed money long down 1/3 on the year as opposed to gold which has more than doubled during the same time.
HG Copper: The copper long increased by 45% to 6k lots and despite trading up close to 8% on the year, the net long remains around 9k lots below the level seen at the start of the year. The lack of interest despite seeing the price attempting an upside break highlights a speculative community still torn between the risk of a global economic downturn versus a recovering China and a drop in exchange monitored stocks to a 15-year seasonal low at 221,000 tons.
Wheat: The widening to a record of the spread between in tight supply Kansas RHW and a falling Chicago SRW (Soft Red Winter) wheat contract helped drive the net short in the Chicago contract to fresh five-year high at 104k lots. The Kansas contract meanwhile registered a 21% increase in the net long to 9.2k lots. Across the other grains contract activity with except for a 21k reduction in the soybean long was muted leaving the total net long across the six major contracts down 33k lots on the week to 140k lots.
Softs buying extends to a third week: All four softs contracts of sugar, coffee, cotton and cocoa continued to attract buying during a week that saw raw (+4.6kj to 220k lots) and white sugar prices hitting fresh decade highs on continued supply concerns amid the prospect for limited exports out of India and concerns about production in other key suppliers like Thailand. Supply concerns from key South American exporters led by Brazil helped lift Arabica coffee (+12.1k to 21.8k) by more than 8% as it prepared to mount what turned out to be a successful attack on the 200-day moving average, now support at $1.90/lb, for the first time since last September.
In forex, speculators bought a considerable amount of euros ahead of the fresh upside push seen later in the week. It lifted the net long to 163k, near the highest since January 2021, and together with a trimming of short positions in sterling to a 13-month low at -2.4k lots and fresh short covering in Swiss franc being only partly offset by selling of AUD, these changes helped boost the overall dollar short against nine IMM forex futures and the Dollar index by 57% to $9.4 billion, a seven-week high.
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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.
