Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Crude oil and gold in demand ahead of FOMC
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, forex and bond futures during the week to Tuesday, September 19. A week that saw stock markets trade softer with US Treasury yields rising ahead of last Wednesday FOMC meeting. Despite continued headwinds from a dollar trading near a six-month high, the commodity sector traded higher with gains led by energy and precious metals.
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
Commodity weekly: Precious metals up despite the Fed’s ‘higher for longer’ message
This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, September 19. A week that saw stock markets trade softer with US Treasury yields risen ahead of last Wednesday FOMC meeting. Despite continued headwinds from a dollar trading near a six-month high, the commodity sector traded higher with gains led by energy and precious metals as well as sugar and coffee.
Commodity sector:
The Bloomberg Commodity index traded higher for a fifth week, supported by 1.2% energy sector rally, firmer investment metals and strong gains in sugar and coffee. Continued tightness in the crude oil and fuel market drove WTI and Brent to fresh cycle highs before running into some mild profit taking. Precious metals meanwhile surprised to the upside with fresh longs and short covering seen ahead of the FOMC meeting, while the agriculture sector remains mixed with harvest pressure hurting grains being partly offset by renewed strength in softs and livestock.
Hedge funds and CTA’s responded to these developments by adding length in crude oil for a fourth week, rebuilding longs in gold and silver while increasing the gross short across grains and soybeans to a 27-month high.
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