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: Mixed week in commodities as dollar buying continued
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 to last Tuesday, 26 November
- Dollar buying continued, albeit at a slowing pace, as demand for yen and CAD picked up
- Surging natural gas, coffee, and cocoa prices were offset by broad weakness elsewhere, highlighting the main features in a mixed week for commodities
Forex:
In forex, speculators responded to continued USD strength, and for a tenth consecutive week - albeit at a slower pace - they further increasing bullish exposure against eight IMM futures and the Dollar Index. Overall, the combined dollar long reached USD 23.2 billion, the highest since July, primarily driven by selling of the euro (-13,500 to -56,000), sterling (-18,700 to -21,600), and the Mexican peso, where the net position returned to neutral. Partly offsetting these sales were short covering in the yen (+24,200 to -22,000) and the CAD (+29,600 to -154,000).
Commodities:
In the latest reporting week ending November 26, the Bloomberg Commodity Index rose by 0.6%, supported by strong gains in Arabica coffee and natural gas, which helped offset losses across the grains and precious metals sectors.
Managed money traders showed a relatively muted response to these developments, as indicated by the changes across various sectors. Notably, there was a broad reduction in grain positions, led by the soybean complex. Interestingly, despite a nearly 10% rally in Arabica coffee, there was no significant reaction from traders. This suggests that the surge toward a 1977 high was primarily driven by panic buying from roasters and intermediaries, which eventually peaked last Friday, followed by the contract's largest setback since 2021.
In energy, the natural gas surge attracted fresh demand, while crude oil positions were mixed.
In the metals sector, gold experienced renewed demand after weeks of net selling, while the silver net long position was reduced to a nine-month low. This adjustment leaves silver better positioned to respond to price-friendly developments moving forward.
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:
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
31 Oct 2024: Crude prices seek stability ahead of key support and US elections
30 Oct 2024: Will the US election result spark a gold correction?
29 Oct 2024: Podcast: Electrification's surge impact on commodities and equities
28 Oct 2024: COT: Crude length cut; silver and platinum see strong demand
25 Oct 2024: Commodity weekly: Market jitters on the rise ahead of U.S. elections
23 Oct 2024: Crude prices stalled by two-sided market risks
22 Oct 2024: Gold and silver's remarkable run in four charts
22 Oct 2024: Podcast: The Trump trade enters the metal market
21 Oct 2024: COT: Dollar shorts squeezed; Shift in commodity exposure from energy to metals
18 Oct 2024: Commodity weekly: Gold's record-breaking run continues
17 Oct 2024: Copper prices decline amid doubts about China stimulus impact
16 Oct 2024: How high can gold and silver rally?
8 Oct 2024: Podcast: Navigating market shifts: Fed rate cuts, commodities and rising food prices
8 Oct 2024: Video: These commodities might be impacted by the US election
7 Oct 2024: Crude oil surge caps strong four-week rally for commodities
7 Oct 2024: COT: Broad buying momentum persists, led by Brent, copper and grains
2 Oct 2024: Q3 2024 Commodity Outlook: Gold and silver continue to shine bright
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