Quarterly Outlook
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Althea Spinozzi
Head of Fixed Income Strategy
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COT: Commodities long liquidation spreads to energy
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, August 15. A week that saw risk adversity continue to rise in response to China growth and financial risk concerns and signs the Federal Reserve’s fight against inflation is not yet done. Speculators meanwhile maintained an unchanged dollar short position while broad commodities selling led to reductions across all sectors, with selling concentrated in gold, copper, soybeans, corn, and coffee while crude oil was mixed with WTI selling, being partly offset by Brent buying
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
Saxo Market Call Daily Podcast
Commodity weekly: China and FOMC woes weigh
This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, August 15. A week that saw risk adversity continue to rise in response to China growth and financial risk concerns and signs the Federal Reserve’s fight against inflation is not yet done. Global stocks lost altitude as US bond yields spiked towards fresh cycle highs while the dollar rose. Leveraged fund short selling across the US yield curve saw the long-end short position reach a record high while a near 2% drop in one of the major commodity indices was driven by broad selling across all sectors.
Commodity sector:
The Bloomberg Commodity index traded lower for a second week as recent selling in metals and agricultural products spread to energy. Overall, it left the index down 1.8% on the week with losses being led by industrial metals (-3.3%) and grains (-3.7%) while emerging consolidation saw the energy sector down 1%. Leverage funds responded to these developments by net selling 16 out of the 24 major commodity futures tracked in this. Overall, the 166k contract reduction in the combined net long to 1.05 million was driven by a 75k contract reduction in the gross long and 90k contract increase in the gross short.
On an individual contract level, selling was concentrated in gold, copper, soybeans, corn, and coffee while crude oil was mixed with WTI selling, being partly offset by Brent buying.
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