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 4. A week that saw a continued and broad recovery in risk appetite as the dollar softened and yields dropped. The Bloomberg Commodity Index meanwhile jumped 2.1% with broad gains being led by energy where the surprise OPEC+ production cut triggered the biggest buying spree of WTI and Brent crude oil futures since December 2016
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 4. A week that saw a continued and broad recovery in risk appetite, led by a strong rally across the stock market. A softer dollar and lower bond yields also helped sentiment as markets continued to recover from the March banking crisis.
The Bloomberg Commodity Index meanwhile jumped 2.1% with broad gains being led by energy where the surprise OPEC+ production cut triggered the biggest buying spree of WTI and Brent crude oil futures since December 2016. A continued rally in precious metals saw silver jump more than 7% while gold managed a break above $2000. The grains sector saw strong buying of corn and soybeans while the Kansas RHW wheat contract received a boost from deteriorating crop conditions. Overall, the buying was driven by a handful of contracts, led by WTI and Brent crude oil, as well as soybeans, corn and gold.
Following weeks of aggressive selling of crude oil futures, in response to darkening recession clouds, as the banking crisis unfolded, hedge funds were forced back on the buy side after OPEC+ jolted the markets with a surprise production cut. In the week to April 4, and especially last Monday April 3, hedge funds turned aggressive buyers thereby boosting their net long by the biggest amount since November 2016. In Brent the buying of 73k contracts to 234k, split between 29k contracts of short covering and 44k contracts of fresh longs, was the second highest weekly addition of length on record. The WTI crude oil net long meanwhile received a 63k boost to 176k with bulk (45k contracts) being short covering.
Since the initial jump following the OPEC+ production cut news, crude oil has traded within a very tight range, and the lack of follow-through buying after such an aggressive amount of buying has left the market at risk of a correction. Not least considering how the price spike last Monday left major gaps to fill down to $80 in Brent and $75.72 in WTI.
It was another strong week for investment metals, led by a 7.2% jump in silver while gold gained a foothold around $2000. Hedge funds responded by adding gold length for a fourth consecutive week, resulting in the net reaching a one-year high at 145k contracts. Silver, meanwhile, late to the game, saw its net long jump 80% to 12k lots to 19.5k contracts, still below the recent peak at 30k contracts from late December. Platinum with its discount to gold still hovering around 1000 dollars saw its net long rise three-fold to 8.8k contracts, still some 64% below the January peak at 24k.
Copper length meanwhile was cut by one-third to just 4k contracts, primarily driven by a 4.6k contract increase in the gross short. The green transition metal has been in downtrend since January with global demand worries more than offsetting falling stocks.
Funds turned net buyers of the grain sector for the first time in seven weeks, during which time the net long across six grain and soy contracts were cut by 85% to a 2-1/2-year low at 80k contracts. Buying last week was led by soybeans (+46k) and corn (35k), the latter flipping back to a small net long of 21.5k contracts, a small change compared with the 380k contract long seen this time last year. Wheat buying was concentrated in the Kansas HRW contract with drought across key winter growing areas hurting the crop outlook, and in the process driving the Kansas premium over Chicago to a record 195 cents per bushel.
Broad fund buying of softs saw the sugar long rising by 5.6% to 216k contracts while the cocoa long reached a fresh three-year high at 51.5k contracts. Short covering reduced the cotton short by 26% to 6.2k contracts while coffee length was cut by 20% to a three-week low at 9.7k contracts.
In forex, the broad dollar weakness seen during the week had a limited impact on the overall dollar short versus nine IMM currency futures, with buying of GBP, AUD and NZD being partly offset by selling of EUR, CHF and JPY. Also important to note that the gross $6 billion dollar short is exclusively being supported by a $19.7bn equivalent long in EUR, with short positions held across most of the others, led by JPY ($5.5bn), CAD ($4.4bn) and AUD ($1.8bn)
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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.
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