Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
COT: Speculative interest in energy and metals gains momentum
Ole Hansen
Head of Commodity Strategy
Key points:
- Commitment of Traders report highlighting futures positions and changes made by speculators across forex and commodities during the week to April 2
- Dollar long position hits 18-month high, driven by a slump in the IMM Euro long to a 30-month low
- Demand for crude oil, gas oil, gold, sugar and coffee more than offsetting fresh grain market selling
- Copper length cut by one-quarter just before prices jumped to a one-year high
Forex:
In the forex market, broad dollar strength in the week to April 2 continued to be the main focus, and it drove a third weekly increase in the non-commercial dollar long versus eight IMM currency futures to an 18-mth high at USD 16.1 billion. The main changes seen during the reporting week were a 46% reduction in the EUR long to a September 2022 low at 16.8k contracts (USD 2.3 billion equivalent), the JPY short hitting a 2013 high at 143.2k contracts (USD 11.9 billion). Besides the dollar, long positions were also held in GBP and MXN, the latter reaching a fresh four-year high at 133.7k contracts (USD 4 billion), as the positive carry continues to attract demand.
Commodities
In the week to April 2, the Bloomberg Commodity index, which tracks a basket of 24 major futures markets split between energy (30.1%), metals (34.2%) and agriculture (35.7%), rallied 2.2% to reach a fresh four-months high. Led by sector gains in precious metals (4.1%), energy (3.8%) and industrial metals (2.1%). Once again, the grains sector stood out, losing 1.5%, thereby supporting speculators long-held bearish view, reflected by a 565k contract net short, valued at USD 18.5 billion.
All of the 13 energy and metal contracts tracked in this recorded gains on the week, supported by a variety of drivers from geopolitical tensions and supply worries to global growth optimism and strong positive price momentum. Managed money accounts from hedge funds to CTAs responded to these overall bullish developments by lifting their across-market gross long by 103k contracts, while the gross short only saw a small 13k contract increase, interestingly driven by copper sellers who very soon after found themselves on the wrong foot as the contract broke higher to reach a one-year high.
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.
Previous "Commitment of Traders" articles
2 Apr 2024: COT: Gold and crude longs maintained amid strong underlying support
25 Mch 2024: COT: Hedge funds zoom in on crude, copper and silver
18 Mch 2024: COT: Hedge funds buying expands from precious metals to copper and grains
11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: COT: Underinvested speculators fuel gold's latest surge
Commodity articles:
5 April 2024: Commodity market sees broad gains, enjoying best week in nine months
4 April 2024: What's next as gold reaches USD 2,300
3 April 2024: Q2 Outlook: Is the correction over?
3 April 2024: Cocoa: A 50% farmgate price boost a step in the right direction
27 Mar 2024: Crude oil maintains support amidst array of bullish signals
26 Mch 2024: Gold's behaviour points to sustained demand
20 Mch 2024: Attacks on Russian refineries lift risk premium and crude prices
19 Mch 2024: How to add copper exposure to your portfolio
15 Mch 2024: Commodity weekly: Green shoots seen across key sectors
13 Mch 2024: Lack of catalyst pushes crude into tightening range
8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
8 Mch 2024: Investing with options - Gold optionality
6 Mch 2024: How to add gold exposure to your portfolio
6 Mch 2024: Video: What happened to the gold prices?
1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
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