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Althea Spinozzi
Head of Fixed Income Strategy
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COT: Speculators pull out of metals and agriculture, retain energy positions
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, August 8. A week that saw global stocks drop by 2% with equities in the US trading lower ahead of last week’s CPI report amid worries about the financial system and the economy after Moody’s downgraded 10 local banks. Developments that saw the US yield curve steepen and the dollar trading firmer. Broad selling hit the commodity sector on disappointing Chinese trade figures.
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 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.
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Commodity weekly: Tight supply adds fuel to crude rally
This summary highlights futures positions and changes made by hedge funds across commodities and forex in the week to last Tuesday, August 8. A week that saw global stocks drop by 2% with equities in the US trading lower ahead of last week’s CPI report amid worries about the financial system and the economy after Moody’s downgraded 10 local banks. Developments that saw the US yield curve steepen and the dollar trading firmer. Broad selling hit the commodity sector on disappointing Chinese trade figures.
Commodity sector:
The Bloomberg Commodity index traded lower during the reporting week as the broad June to July rally began to fade with the energy sector being the only still advancing. All the other sectors saw sharp declines, led by industrial metals on China growth concerns and precious metals in response to a stronger dollar and US Treasury yields. Elsewhere the agricultural sector saw heavy and broad selling with the grains sector loosing 2.1% and the softs sector 2.6%.Responding to these developments the overall net long held by hedge funds was cut by 13% and on an individual basis 19 out of the 24 major commodity futures tracked in this report saw net selling led by gold, silver, copper, soybeans, corn and sugar while demand was concentrated in natural gas and the two diesel contracts.
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