Head of Commodity Strategy
Managed money accounts turned net sellers of most energy and grains contracts, while buying was concentrated in precious metals and softs
Speculators scaled back their dollar short against eight IMM futures during a reporting week that saw heightened geopolitical tensions following Iran’s missile strike against Israel, US economic data strength, China releasing a mini-bazooka, and European CPI falling below 2% for the first time in three years. Overall, these events triggered heavy selling of EUR and strong buying of AUD, and by the end of last Tuesday, the dollar short had been reduced by USD 1 billion to USD 13.62 billion.
The AUD position flipped to a 14.5k net long from 40k short just two weeks prior, before several stimuli were announced, while, as mentioned, the prospect of the ECB stepping up its rate-cutting pace helped send the EUR lower, resulting in a 23% reduction in the net long. The JPY saw net selling for the first time in thirteen weeks as USDJPY showed signs of rolling over, with US rate cut optimism fading amid strong US economic data, and Japan’s ruling LD party surprisingly picked Ishiba to be its next leader.
In the latest reporting week to 15 October, the Bloomberg Commodity Index suffered a 1.6% reversal, with losses in energy, grains, and industrial metals only partly offset by gains in softs and precious metals, where gold, silver, and platinum all performed strongly.
In energy, the geopolitical risk premium evaporated as Israel delayed an expected retaliatory attack against Iran, leaving the market to focus on sluggish demand and the risk of unwanted supply from OPEC+. Elsewhere, industrial metals suffered a setback after traders paused in response to recent stimulus announcements in China and concerns about their ability to steer economic growth back towards the 5% target. The grains sector came under renewed pressure from the prospect of an abundance of supply being harvested in the US, while softs remained in demand, with weather concerns in key production regions underpinning prices and demand for sugar, cocoa, and coffee.
Managed money accounts, such as hedge funds and CTAs, responded to these developments by selling most energy and grains contracts, led by Brent, WTI, natural gas, soybeans, and corn, while buying was concentrated in gold, silver, platinum, RBOB gasoline, and livestock.
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:
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.
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Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy