Head of Commodity Strategy
Summary: Speculative dollar selling against ten IMM currency futures, with the exception of JPY, extended into a sixth week with multi-month position highs seen in MXN, CHF, GBP and AUD.
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
Speculative selling of dollars against ten IMM currency futures and the Dollar Index extended into a sixth week. In the week to last Tuesday the combined Greenback long had been cut to a fresh 18 months low at just $2.9 billion. Only aggressive selling of JPY (19k lots = $2.2 bn), as it reached a new low, prevented the dollar position from returning to neutral.
During the past six weeks, while the dollar long was cut by 74%, the Greenback weakened by less than 0.5% against a broad basket of currencies. It highlights the potential short term risks to positions should the dollar suddenly pop higher.
Multi month position highs were reached in several currencies led by MXN (record), CHF (Aug-17), GBP (May-18) and AUD (June-18).
The continued stock market rally drove a 16% increase in the VIX short to a four-week high at 168k lots.
Leveraged funds covered short positions at the front of the curve while extending the net-short in Ultra long bonds to a fresh record. The graph below shows how the open interest in US bond futures are mainly split between asset managers, leveraged funds and dealer intermediaries. Leveraged funds are clearly not that naked short, otherwise many would have suffered major losses during the past nine months. Instead the short positions most likely reflects hedging or spread activities against other bonds or asset classes.
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.
