Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Head of Fixed Income Strategy
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COT: Hedge funds buying expands from precious metals to copper and grains
Ole Hansen
Head of Commodity Strategy
Summary: Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds and other speculators across commodities and forex during the week to last Tuesday, 12 March. A week that included the February US CPI, which topped forecasts, thereby reinforcing the Federal Reserve’s cautious approach to cutting interest rates. The commodities sector nevertheless saw broad gains led by industrial metals and beaten-down grains while the dollar traded softer.
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 main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's 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
Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.
Forex:
Broad dollar weakness during the reporting period did not translate into broad selling from speculators, with buying of GBP (+12k to 70.5k), EUR (+8k to 74.4k) and not least JPY (+16.5k to -102.3k) being partly offset by selling of NZD, AUD and CAD. Overall, the gross dollar long against eight IMM forex futures fell by 55% to near neutral at USD 1.26 billion. In focus this week will be Tuesday’s Bank of Japan decision on whether to pivot away from negative rates, but gains in the yen could remain limited by dovish commentary and risks of a hawkish surprise by the Fed on Wednesday when the FOMC meets.
For the past three years, speculators have traded the yen with a short bias, culminating last month when the net short reached 133,000 contract (USD 11.3 billion) before two weeks of short covering lowered the net short to the current 102.3k contracts.
Commodities
The Bloomberg Commodity index, which tracks a basket of 24 major futures markets split between energy (30.1%), metals (34.2%) and agriculture (35.7%), traded higher for a second week, and while it was precious metals at the start of the month that led the gains, last week saw broad gains emerging across all sectors. Out of the 26 futures contracts tracked in this, only crude oil and natural gas saw notable declines while all other sectors traded higher, including the beaten-down grain sector with hedge funds reducing a record short position ahead of the Northern Hemisphere planting season.
On an individual level, the biggest changes based on nominal values was the USD 6.2 billion increase in gold lifting the net to USD 34.6 billion, and now exceeding the combined net long in WTI and Brent crude oil at USD 32.4 billion. Other notable buying activity was seen in silver, platinum, copper, soybeans and corn.
15 Mch 2024: Commodity weekly: Green shoots seen across key sectors
13 Mch 2024: Lack of catalyst pushes crude into tightening range
8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
8 Mch 2024: Investing with options - Gold optionality
6 Mch 2024: How to add gold exposure to your portfolio
6 Mch 2024: Video: What happened to the gold prices?
1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
29 Feb 2024: Podcast: Why speculative interest is important to understand
28 Feb 2024: Oil price stuck in neutral despite underlying strength
27 Feb 2024: Resilient gold market defies lower rate cut predictions
22 Feb 2024: Copper short squeeze fades ahead of key resistance
21 Feb 2024: Gold's resilience despite recent futures and ETF selling
20 Feb 2024: WTI crude eyes resistance amid improved signals
16 Feb 2024: Commodity weekly: Grains tumble; Industrial metals eye China boost
15 Feb 2024: US rate cut delay drives gold below $2000
13 Feb 2024: Video: What is driving Cocoa's sweet price
9 Feb 2024: Commodity weekly: Refined product strength lifts crude
9 Feb 2024: Podcast: Year of the metals
7 Feb 2024: Crude oil supported by tightening fuel outlook
6 Feb 2024: Gold and silver turn defensive on reduced Fed rate-cut optimism
2 Feb 2024: Commodity weekly: Tight supply adds fuel to uranium and cocoa rally
1 Feb 2024: Commodities: January performance and ETF flows
Previous "Commitment of Traders" articles
11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: COT: Underinvested speculators fuel gold's latest surge
26 Feb 2024: COT: Record corn short, cocoa surge no longer supported by speculators
19 Feb 2024: COT: US inflation surprise drives broad selling of metals
5 Feb 2024:COT: Speculators chase false crude break; grain short extends further
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