Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Crude long jumps on Saudi production cut; Dollar bears on the run
Ole Hansen
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, September 5. A week that saw markets respond to rising bond yields and a stronger dollar amid strength in US economic data and raised inflation concerns following Saudi Arabia's move to support oil prices.
Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.
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.
Global Market Quick Take Europe
Commodity weekly: Crude production curbs and dollar strength in focus
This summary highlights futures positions and changes made by hedge funds across commodities and forex in the week to last Tuesday, September 5. A week that saw steady trading stock markets despite rising bond yields amid strength in US economic data and a dollar trading near its strongest in six months. The commodity sector meanwhile was mixed with a Saudi/Russian production cut extension boosting the energy sector while the stronger dollar weighed on the metal sector.
Commodity sector:
The Bloomberg Commodity index traded higher for the second week as strong gains in energy and soft commodities helped offset weakness in precious metals and grains. In general, it was a week where the main drivers were tightening crude oil markets amid the three-month production cut extension being announced by Saudi Arabia and Russia and the continued dollar strength as well rising bond yields amid continued strength in US economic data.
Hedge funds and CTA’s responded to these developments by aggressively adding to their long positions in WTI and Brent crude oil, while gold and copper saw net buying despite softer price action. The agriculture sector saw a sharp divide between grains selling ahead of the US harvest and softs being bought amid weather worries and tight supply.
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