Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
COT: Funds cut bullish oil bets ahead of US sanctions
Ole Hansen
Head of Commodity Strategy
Summary: Leveraged funds cut bullish commodity bets by the most since July during the week to October 30. During this time, the dollar strengthened further while global stocks remained under pressure from growth and trade war concerns.
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
To download your copy of the Commitment of Traders: Commodities report for the week ending October 30, click here.
First, the reasons why we focus primarily on the behaviour of leveraged funds:
• 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.
Leveraged funds cut bullish commodity bets by the most since July during the week to October 30. During this time, the dollar strengthened further while global stocks remained under pressure from growth and trade war concerns.
The selling was broad-based with 19 out of 26 futures being sold, not least the energy and grains sectors. As a result, the total value of the open interest across these major commodity futures dropped below 1,000 billion for the first time since March.
The steep decline in bullish crude oil bets extended to a fifth week with the net-longs in WTI and Brent reaching 13- and 15-month lows respectively. Producers pumping at will together with a clouded outlook for demand and reduced concerns about Iran sanctions has raised the question of whether we have seen a fundamental shift in the market. In order to gauge whether this is the case, the market will be watching closely the price behaviour as WTI approaches $60/barrel and particularly Brent at $70/b, a level which has provided resistance and then support on several occasions since January.
Gold is currently stuck in a range between $1,210 and $1,240/oz and the 74% reduction in bearish gold bets during the previous two weeks and the stronger dollar at the beginning of last week helped trigger renewed selling and a test of support. However, the 19,000-lot increase in the net-short helped support gold towards the end of the week when the dollar weakened, especially against CNY.
In copper, hedge funds more than doubled bearish bets ahead of the near 7% surge towards the end of last week. This after China signalled increased urgency for further stimulus measures and US president Trump said he had a productive conversation with Chinese president XI Jinping. Platinum, meanwhile, returned to neutral after funds cut net bearish bets to a seven-month low.
In copper, hedge funds more than doubled bearish bets ahead of the near 7% surge towards the end of last week. This after China signalled increased urgency for further stimulus measures and US president Trump said he had a productive conversation with Chinese president XI Jinping. Platinum, meanwhile, returned to neutral after funds cut net bearish bets to a seven-month low.
The grains complex was sold across the board with net-shorts in soybeans and wheat extending further on harvest pressure and export challenges due to tariffs and the strong dollar.
Sugar and coffee continued to be bought despite some emerging profit-taking in the Brazilian real following last week’s election. The net-long in sugar was the highest since March 2017 while the net-short in coffee reached a 13-month low following a 76% reduction during the past six weeks.
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