Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Head of Fixed Income Strategy
COT: Grain buying accelerates; GBP long jumped ahead of BOE
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, June 20. A week that saw continued gains across the stock market with yields and the dollar trading softer just before several reversals occurred following Fed Chair Powell’s combatant testimony before a US Congress committee last Wednesday. Prior to these comments which triggered corrections across markets, speculators had increased their dollar short, primarily due to record buying of Sterling, while in commodities flows were mixed with buyers concentrating their interest in crude oil, natural gas, sugar, and not least a continued surging grains market.
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.
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This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, June 20. A week that saw continued gains across the stock market with yields and the dollar trading softer just before several reversals occurred following Fed Chair Powell’s combatant testimony before a US Congress committee last Wednesday. In it he described a US economy that is still strong, with inflation running too high, and repeated that most officials think interest rates will need to go higher to tame prices.
Prior to these comments which triggered corrections across markets, speculators had increased their dollar short, primarily due to record buying of Sterling, while in commodities flows were mixed with buyers concentrating their interest in crude oil, natural gas, grains, and sugar.
Commodity sector:
In the week to June 20, the Bloomberg Commodity Index climbed 2.5% with gains seen across all sectors except precious metals where profit taking continued after the latest FOMC meeting signaled a further peak rate delay. Gains were concentrated in energy (3%) and not least the grains market (8.3%) after hot and dry weather raised concerns about this season's production levels of key crops.
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