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, May 23. A week where US stocks, led by tech-heavy Nasdaq, were in buoyant mood while the dollar and bond yields continued higher amid robust economic data raising expectations for another rate hike before July. In the update below we take a closer look at how speculators in forex and commodities futures responded to these developments.
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:
Responding to these developments, hedge funds bought Brent, natural gas and copper while selling WTI and gold. The agriculture sector meanwhile was mixed with renewed selling of grains offsetting demand for softs and livestock.
Crude oil and fuel products: Money managers increased their net-long position in Brent by more than 30,000 contracts, the biggest increase in almost two months. The increase was driven by a combination of fresh longs (16.5k) and a 13.6k contract reduction in the gross short. In WTI the opposite story resulted in a 17k contract reduction in the net long to 143k. Short covering in gasoil meanwhile extended to a third week while the RBOB gasoline net long jumped 25%.
Gold, silver and copper: Hedge funds were net sellers of gold for a second week, but interestingly the reduction was driven by long liquidation with no appetite for short selling despite the recent technical breakdown. Equally in silver the selling appetite was also muted while the copper net short was reduced by 27%, the first reduction following five weeks of constant selling that saw the net drop from a 20k net long to a 22.6k net short
Grains: Selling of grains resumed resulting in the net-short across the six soy and grains contracts reaching a fresh 33-month high at -159k contracts. All contracts, except KCB wheat saw net selling led by soybeans and soybean meal.
Softs: All four contracts tracked in this update continued to be bought as the supply outlook for sugar, coffee and cocoa remains challenged by adverse weather developments, most notably an ongoing heatwave across Asia. The main change this past week, however, was a 163% reduction in the cotton net short to 8k contracts.
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.
