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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Speculators switch exposure from grains and energy to 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 Tuesday, December 6. A week that saw continued selling of the dollar as speculators increasingly favored the euro, and lower bond yields on concerns about the economic growth outlook. The commodity sector had a mixed week with growth worries sending the energy sector down while the metal sector was supported by China reopening hopes
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 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
Financial Markets Daily Quick Take
Saxo Market Call Daily Podcast
This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to Tuesday, December 6. A week that saw continued selling of the dollar as speculators increasingly favored the euro, and lower bond yields on concerns about the economic growth outlook. The commodity sector had a mixed week with growth worries sending the energy sector down by more than 13% while the metal sector was supported by the prospect for a reopening in China giving a boost to demand. The grains sector meanwhile suffered broad losses driving the biggest one-week reduction speculative length in more than a year.
Commodities
The commodity sector had a mixed week with the market focusing on the potential diverging macroeconomic outlook for China and the rest of the world. A focus that led to continued selling of energy while the industrial metal sector showed strong gains. Overall the Bloomberg commodity index lost 4.5% with losses in energy and grains being only partly offset by gains in precious and not least industrial metals. Selling was led by corn, soybean oil, natural gas and fuel products with buying being concentrated in gold, soymeal, cocoa and meats.Ahead of year-end the open interest across 21 major commodity futures holds near an eight year low at 12.9 million lots. The year-to-date change shows a 13% reduction in energy to 6.14 million, a 6% reduction in agriculture to 5.75 million, and a 9% reduction in metals to 0.97 million. Speculators meanwhile hold a 622,000 lots net long which is down 39% from the beginning of the year.
Energy
The COT report showed a divergence between WTI where 5.7k lots were net bought and Brent which suffered a 4.2k lots reduction to 95k lots, the smallest bet on rising prices in more than two years. The gasoil long was cut to 38k lots, also a two-year low with gasoline and diesel also seeing net selling.Metals
Money managers lifted the COMEX gold net long by 34% to 37.6k lots, primarily driven by fresh longs being added. The copper long jumped 25% to 16k lots while only small changes were seen in silver and platinum
Agriculture
Overall the total net long across the grains sector which covers six soybeans and grain contracts, dropped by 35% to 156k lots, the lowest since August 2020 and down 73% from the March panic peak when the Bloomberg grains spot index hit a record high from where it has now fallen by more than 20%.
The reduction was led by corn where money managers responded to a 5% price drop by cutting the net long by 37% to 120k lots. Lowest bets on rising prices since September 202 and biggest one week reduction since March 2019. The wheat short hit a fresh 43 month high at -63.4k lots while speculators dumped a record 43k lots of soyoil during a week where the price tanked by 15%.
In softs, a fresh tumble in the price of Arabica coffee triggered a 17% jump in the net short to -22.5k lots, highest since July 2020. Elsewhere, the cocoa short was cut by 58% while cotton and sugar both saw net buying.
Forex
In forex, a mixed week saw speculators in IMM forex futures going further short the dollar with buying of EUR, CHF, AUD and not least GBP more than offsetting selling of CAD and MXN. The euro long reached a March 2021 high at 125k lots or €15.6 billion.
The breakdown shows the mention concentration of euro longs at $16.3 billion equivalent built up since late August while the bulk fo the short positions are held in JPY (-$6 billion), AUD (-$2.7 billion) and GBP (-$2.1 billion).
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