Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT Report: Hedge fund long jumps to 17-month high led by crude, gas, metals and corn
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 ending Tuesday, 7 January 2025.
- Broad selling of the major IMM currency futures, except EUR, drove the combined dollar long to a fresh six-year high, raising correction risks.
- A buoyant mood across the entire commodity sector, led by energy, metals, and grains, lifted the combined hedge funds long to a 17-month high.
- On an individual level, the appetite for risk was driven by demand for WTI and Brent crude oil, natural gas, most metals, and corn.
Forex:
In forex, the combined dollar long versus eight IMM futures reached a fresh six-year high after rising 8% to USD 34.8 billion. Except for a small amount of short covering in EUR, the change was driven by broad selling, led by JPY, CHF, and GBP. However, given the elevated nature of the dollar long, which is justified following an almost non-stop rally since late September, the risk of pullbacks is likely to rise in the short term. This is especially true as we approach the Trump Presidency, which should provide more clarity on his policies, some of which may impact the strength of the dollar.
Commodities:
Following on from a relatively buoyant mood ahead of year end, speculators spent the first week of the year continuing that trend, with strong demand for energy, metals and grains lifting the combined net long across the key commodities tracked in this by 21% to a 17-month high at 1.35 million contracts.
As mentioned, the appetite for risk was led by the energy sector where continued strong price action in crude oil helped lift the combined net long in WTI and Brent to 434 million barrels, an eight-month high. Note, the rally in crude oil gathered further momentum following the cut off date last Tuesday after the US increased sanctions against Russia’s oil industry. In metals, a 5% rally in silver helped drive a 52% increase in the net-long, while wrong-footed short sellers in copper and platinum was forced to reverse course, and flip positions back to net longs. Another sector seeing strong demand was the grains sector, where continued demand for corn drove the net long to a two-year high while short covering supported soybeans.
On an individual basis, the contracts seeing the biggest demand were crude oil, both Brent and WTI, followed by natural gas, gold, platinum, copper and corn, while a limited amount of net selling activity was centered around palladium, soybean oil, and cocoa.
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:
13 Jan 2025: Crude oil rally amid winter demand and Russian sanctions
10 Jan 2025: Commodities weekly: Strong start to the year led by energy and metals
7 Jan 2025: COT Report: Managed money's year-end positioning in forex and commodities
20 Dec 2024: Silver's resurgence in 2024: A precious metal with an industrial edge
17 Dec 2024: Investors cash in: Gold and silver see year-end profit taking
17 Dec 2024: Podcast: A wild ride in 2025 awaits
16 Dec 2024: COT Report: Agriculture in demand; Traders lift bets against the euro
13 Dec 2024: Commodities weekly: The forward curve and impact on returns
10 Dec 2024: Brazil's coffee crisis pushes Arabica to all-time high
9 Dec 2024: COT Report: Speculators bought crude and gold: euro shorts reach 4-year peak
6 Dec 2024: Commodities weekly: Copper rises on China optimism; OPEC delay signals crude weakness
3 Dec 2024: COT: Mixed week in commodities as dollar buying continued
29 Nov 2024: Commodities take a breather after action-packed November
28 Nov 2024: Coffee surges to a 47-year high
28 Nov 2024: Choppy gold market turns to Santa for December support
27 Nov 2024: Podcast: Will gold enjoy a Santa rally for the eight year in a row?
25 Nov 2024: COT Report: USD long jumps; Mixed week in commodities
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
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