Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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COT report: traders turn selective despite ongoing broad commodities rally. Dollar selling continues
Ole Hansen
Head of Commodity Strategy
Key points:
- Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds across forex and commodities during the week ending Tuesday, 18 February, 2025.
- Broad selling triggered a fifth weekly reduction in the USD net long against eight major IMM futures contracts
- In commodities, hedge funds began to exhibit signs of caution, turning more selective in their choices following a rally that has taken a leading commodities index to a 17-month high
- Increased exposure towards natural gas, silver, wheat and sugar being partly offset by net selling of crude and gold, two of the most popular contracts
Forex:
In the forex market, speculators continued to scale back bullish USD bets, with a fifth week of net selling against eight IMM futures reducing the gross long by USD 3.3 billion to USD 23.5 billion, an 11-week low. As opposed to recent weeks where most of the US dollar selling was against the Japanese yen, the recent reporting week saw broad selling against most of the major crosses, led by the euro, Australian dollar, Japanese yen, and Canadian dollar.
Overall, however, a net long and, in some cases, still elevated US dollar position is being held against most of the currencies tracked in this update, the notable exception being the Japanese yen, which has seen continued buying for the past five weeks, worth more than USD 7 billion.
Commodities:
Following several weeks of widespread buying across most commodities and sectors, hedge funds began to exhibit signs of caution, adopting a more selective approach during the week leading up to 18 February. This period saw the Bloomberg Commodity Index climbing by 1.6% to reach a new 17-month high, buoyed by gains across all sectors except livestock.
The standout performers were the grains sector, bolstered by wheat and corn, alongside the energy sector, where a strong 14% surge in natural gas prices more than compensated for losses in crude and fuel contracts. Almost non-stop buying since November has seen the natural gas net long jump to a four-year high as traders respond to an improved outlook for US domestic demand and rising LNG exports, both potentially underpinning higher prices. However, in the short term, with many fresh longs in the market, the risk of a pullback has risen.
Overall, the net long positions across the 27 major futures markets tracked in this update increased by 6%, reaching 1.7 million contracts, which equates to a nominal value of USD 153 billion. However, as illustrated in the table below, only a select few contracts were responsible for driving this increase, with natural gas, gas oil, silver, wheat, corn, and sugar leading the charge.
In contrast, crude oil and gold, two of the most popular contracts for trading, experienced net selling. This was a reaction to the persistent weakness in crude oil prices and a gold market that required consolidation after an eight-week rally, which had pushed prices close to USD 3,000. Continuing with the metals sector, it is noteworthy that there was a significant increase in the net long positions for silver, driven by fresh buying activity, partly supported by copper strength, which drove a 23% increase in the High Grade contract. However, given the increase in the net long was mostly due to short-covering, it suggests a (copper) market environment where recent price surges have not been supported by underlying fundamental factors, such as the ongoing increase in stocks monitored by major futures exchanges.
In the agricultural sector, concerns about cold weather in the United States and Russia prompted short-covering across the Chicago and Kansas wheat contracts. Despite this activity, a net short position was maintained in both, highlighting the need for even stronger gains to trigger a change in the overall negative sentiment. In other developments, the net short position in sugar was reduced by 76% as the commodity staged a robust recovery, with prices surging more than 20% over the past five weeks.
In contrast, Arabica coffee's rally to a new all-time high did not attract additional demand. Both long and short positions were reduced, resulting in a slight decrease in the net long position for the week. This indicates a cautious market sentiment despite the recent price rally.
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.
Recent commodity articles:
21 Feb 2025: Commodities weekly: energy market strength and Trump rethoric fuel surge
18 Feb 2025: COT report: crude, gold and grains see mild profit taking
5 Feb 2025: Broad Strength Drives Commodities sector to 26-month High
4 Feb 2025: Crude Oil Wipes Out 2025 Gains as Tariffs and Demand Weighs
3 Feb 2025: COT Report: Mixed Week Seen Ahead of Trump's Tariff Offensive
1 Feb 2025: YouTube: Joining Kevin Muir on The Market Huddle podcast
31 Jan 2025: Commodities weekly: Strong January led by precious metals
29 Jan 2025: Agriculture sector rally led by coffee, corn and cattle
27 Jan 2025: COT Report: Commodity buying extends to fourth week
24 Jan 2025: Commodities weekly: Trump tariff threats and energy agenda in focus
23 Jan 2025: Crude oil weakens amid tariff uncertainty
22 Jan 2025: Gold and silver see fresh gains as Trump 2.0 era begins
20 Jan 2025: COT Report: Elevated commodities longs face short-term risks
17 Jan 2025: Commodities weekly: Strong January rally pauses ahead of Trump
15 Jan 2025: Q1 2025 Commodity outlook: A bumpy road ahead calls for diversification
14 Jan 2025: COT Report: Hedge fund long jumps to 17-month high led by crude, gas and metals
13 Jan 2025: Crude oil rally amid winter demand and Russian sanctions
10 Jan 2025: Commodities weekly: Strong start to the year led by energy and metals
7 Jan 2025: COT Report: Managed money's year-end positioning in forex and commodities
20 Dec 2024: Silver's resurgence in 2024: A precious metal with an industrial edge
17 Dec 2024: Investors cash in: Gold and silver see year-end profit taking
17 Dec 2024: Podcast: A wild ride in 2025 awaits
16 Dec 2024: COT Report: Agriculture in demand; Traders lift bets against the euro
13 Dec 2024: Commodities weekly: The forward curve and impact on returns
10 Dec 2024: Brazil's coffee crisis pushes Arabica to all-time high
9 Dec 2024: COT Report: Speculators bought crude and gold: euro shorts reach 4-year peak
6 Dec 2024: Commodities weekly: Copper rises on China optimism; OPEC delay signals crude weakness
3 Dec 2024: COT: Mixed week in commodities as dollar buying continued
Podcasts that include commodities focus:
18 Feb 2025: Europe is on fire
5 Feb 2025: Mag 7 risks underappreciated?
3 Feb 2025: If new Trump tariffs stick, markets have only just begun to react
31 Jan 2025: Does the market think Trump is bluffing?
29 Jan 2025: The DeepSeek winners emerge
27 Jan 2025: DeepSeeking missile strikes global markets
24 Jan 2025: Four days in, Trump continues to dominate headlines, but ...
20 Jan 2025: Trump 2.0 swings into action
17 Jan 2025: Brace for Monday, as a new era begins
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