Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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COT Report: Managed money's year-end positioning in forex and commodities
Ole Hansen
Head of Commodity Strategy
Key points:
- Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds across forex and commodities during the week to last Tuesday, 31 December 2024.
- Speculators ended 2024 holding the biggest dollar against eight IMM forex futures since April and prior to that since mid-2019
- The commodities sector saw strong end of year demand for energy, led by crude oil, and grains led by corn
- Both investment and industrial metals, saw net selling, courtesy of the stronger dollar and end of year profit taking
Forex:
In forex, speculators ended the year holding a USD 32.3 billion net long USD position versus eight IMM futures contracts and the DXY. Apart from a brief peak last April, this was the biggest bet on a stronger dollar since mid-2019. This helps explain the sudden burst of dollar selling on Monday following a report from the Washington Post that, according to sources, Trump may not seek broad-based tariffs, preferring to target key imports instead. Trump specifically denied the rumors, though this only partially defused the USD weakness as flows became less one-sided in favor of the dollar, as seen during the past couple of months. Besides small net longs in GBP and MXN, all other currencies were traded from the short side, led by CAD (-$12.3bn equivalent), EUR (-$9bn), CHF (-$4.6bn), and AUD (-$4.4bn).
Commodities:
Speculators exhibited a relatively buoyant mood ahead of year-end according to data covering managed money activity in the week to 31 December. While activity ground to a halt, the Bloomberg Commodity Index nevertheless managed to rise 0.6% despite continued headwinds from a stronger dollar, which rose by the same amount. Demand, however, was focused primarily on the energy sector, which rose 2.2%, and the grains, which gained 2.7%. At the other end of the scale, the metal sector, both investment and industrial metals, saw net selling, weighed down by end-of-year profit-taking courtesy of the stronger dollar and early 2025 demand concerns sending copper lower to challenge key support. On an individual level, the buying was concentrated in WTI and Brent crude oil, the two distillate (diesel) contracts, natural gas, and the three major grains contracts, while sellers focused on platinum, copper, sugar, and hogs.
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.
Recent commodity articles:
22 Nov 2024: Commodity weekly: Strongest performance since April
19 Nov 2024: Gold and silver rise on Russia-US tensions
18 Nov 2024: COT: Limited dollar demand despite strength; Acclerated metals selling
11 Nov 2024: COT: Speculators bought energy and grains, sold gold ahead of elections
8 Nov 2024: Commodity weekly: Mixed response to Trump 2.0
6 Nov 2024: Podcast: US election and the market reactions, including commodities
6 Nov 2024: Trump and Republican victories spark commodity decline
4 Nov 2024: COT: Speculators flock to dollars, exit commodities ahead of US election
1 Nov 2024: Commodity weekly: Some weakness seen ahead of critical week
31 Oct 2024: Crude prices seek stability ahead of key support and US elections
30 Oct 2024: Will the US election result spark a gold correction?
29 Oct 2024: Podcast: Electrification's surge impact on commodities and equities
28 Oct 2024: COT: Crude length cut; silver and platinum see strong demand
25 Oct 2024: Commodity weekly: Market jitters on the rise ahead of U.S. elections
23 Oct 2024: Crude prices stalled by two-sided market risks
22 Oct 2024: Gold and silver's remarkable run in four charts
22 Oct 2024: Podcast: The Trump trade enters the metal market
21 Oct 2024: COT: Dollar shorts squeezed; Shift in commodity exposure from energy to metals
18 Oct 2024: Commodity weekly: Gold's record-breaking run continues
17 Oct 2024: Copper prices decline amid doubts about China stimulus impact
16 Oct 2024: How high can gold and silver rally?
8 Oct 2024: Podcast: Navigating market shifts: Fed rate cuts, commodities and rising food prices
8 Oct 2024: Video: These commodities might be impacted by the US election
7 Oct 2024: Crude oil surge caps strong four-week rally for commodities
7 Oct 2024: COT: Broad buying momentum persists, led by Brent, copper and grains
2 Oct 2024: Q3 2024 Commodity Outlook: Gold and silver continue to shine bright
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