Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Speculators rush into crude oil futures; Dollar short cut to near neutral
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, September 12. A week that saw the short end of the US yield curve firm up amid rising energy prices and robustness in US data pointing to higher for longer rates, while the dollar paused following a week-long ascent. The commodity sector saw a sharp divide between surging energy prices led by fuel products and renewed weakness across metals and grains.
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.
Global Market Quick Take Europe
This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, September 12. A week that saw some emerging stock market weakness led the US tech sector. Elsewhere the short end of the US yield curve firmed up amid rising energy prices and robustness in US data pointing to higher for longer rates, while the dollar paused following a week-long ascent. The commodity sector saw a sharp divide between surging energy prices led by fuel products and renewed weakness across metals and grains.
Commodity sector:
The Bloomberg Commodity index traded higher for a third week, but the small increase was unevenly split with a 2.5% rally in the energy sector and firmer livestock prices being offset by losses in metals, both precious and industrial as well as grains. A tightening fuel product market amid lower output of crude oil from Saudi Arabia and Russia, as well as the higher for longer US rates, were the two main themes driving activity, together with data pointing to a US crop being less impacted by drought than original feared.
Hedge funds and CTA’s responded to these developments by aggressively adding to their long positions in WTI and Brent crude oil for a second week, while all the major metals saw net selling.
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