Quarterly Outlook
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Head of Fixed Income Strategy
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COT: Hawkish Fed drives selling of energy and metals
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 August 30. A week that covered the markets overall negative response to the hawkish message from Federal Reserve Chairman Powell at Jackson Hole. Growth and interest rate sensitive commodities were sold while key agriculture commodities, supported by tightening fundamentals attracted continued buying.
Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 30. A week that saw financial markets and commodities respond mostly negatively to renewed growth concerns after the Federal Reserve Chairman, Jerome Powell, left the market in no doubt that the US and other major central banks would continue to hike rates and keep them high for a prolonged period in order to combat runaway inflation. This development helped to drive stock markets sharply lower, while the dollar reached multi-year highs and bond yields climbed back towards the June high.
Commodities
The Bloomberg Commodity index traded lower by around 1% during the reporting week as losses in energy, precious and industrial metals were only partly offset by gains in grains and soft commodities. Hedge funds reacted to these developments by cutting length in growth and interest rate sensitive commodities from natural gas to gold, copper and livestock while buying was concentrated in corn, sugar, cocoa and coffee. Energy: Crude oil was mixed with net selling of WTI being more than offset by demand for Brent where fresh buying was seen after the price approached support in the low-90 dollar per barrel area. Across the product market positions were adjusted according to the latest developments that had seen slowing demand for gasoline while the gas-to-fuel switch supported demand for diesel contracts, both the ULSD (Heating oil) contract traded in New York and the London traded GasOil contract.
Metals: Precious metals saw continued selling with speculators cutting their gold net long by 32% to 20.7k lots while increasing net short positions in silver, platinum and copper.
Agriculture: Funds added length in grains for a fifth week, led by corn after the US ProFarmer Tour reduced the crop outlook. The soybean complex was mixed while length was added to Kansas wheat and the CBOT short was reduced. The soft sector saw net buying of all four contracts fresh longs being added to sugar, coffee and cotton while the cocoa net short was reduced.
Forex
The forex market responded very muted to dollar strength that followed the Jackson Hole speech by Federal Reserve Chairman, Jerome Powell. Overall the gross dollar long against nine IMM forex futures and the dollar index rose by 3% to $18.5 billion, with selling of euro, sterling and yen being partly offset by demand for CAD, AUD and MXN. The short position held in IMM Euro contracts reached 47.7k contracts or nearly €6 billion, the biggest bet on a weaker euro since March 2020.
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 reasons why we focus primarily on the behavior of the highlighted groups 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
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