Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Heavy gold and crude selling ahead of Middle East tensions spike
Ole Hansen
Head of Commodity Strategy
Summary: This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, October 10. A week that started on a positive note before ending with a flurry of safe haven demand following Hamas’ attack on Israel. Prior to last Monday’s geopolitical turmoil, stock markets had enjoyed a strong week with Treasury yields and the dollar falling after several Federal Reserved members said surging Treasury yields had reduced the need for additional rate hikes.
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.
Commodity weekly from October 13: Strong week supported by geo-risks and peak rate speculation
This summary highlights futures positions and changes made by hedge funds across commodities andforexin the week to last Tuesday, October 10. A week that started on a positive note before ending with a flurry of safe haven demand following Hamas’ attack on Israel. Prior to last Monday’s geopolitical turmoil, stock markets had enjoyed a strong week with Treasury yields and the dollar falling after several Federal Reserved members said surging Treasury yields had reduced the need for additional rate hikes.
Commodity sector:
The Bloomberg Commodity index fell 1% during the reporting week with a significant amount of weakness early on being only partly offset following Monday’s geopolitical-led bounce in energy and precious metals. As a result, hedge funds sold commodities for a fourth week, led by crude oil, fuel products, gold, and most agriculture commodities, with the few exceptions being natural gas, copper, corn, and sugar. Developments in gold price and positioning ahead of Monday’s spike explain why last week’s rally was mostly about short covering and safe haven demand, and not yet a fundamental change pointing to higher prices in the short-term.
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