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COT: Broad commodity selling led by crude and gold; T-bond short hit fresh record
Commodities
Ole Hansen
Head of Commodity Strategy
Résumé: Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities, forex and bonds during the week to Tuesday, August 22. A week that saw risk adversity continue, driven by global growth concerns and a relentless rise in government bond yields. Elsewhere the dollar remained bid, forcing additional short covering from speculators while an unchanged commodity sector did little to prevent continued long liquidation, led by crude oil and gold.
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
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This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, August 22. A week that saw risk adversity continue, driven by global growth concerns and a relentless rise in government bond yields which saw the yield on US 10-year Notes reach a fresh 16-year ahead of Friday’s Jackson Hole remarks from Jerome Powell, the Fed Chair. Elsewhere the dollar remained bid, forcing additional short covering from speculators while the commodity sector was mixed.
The Bloomberg Commodity index traded flat on the week with gains in metals and grains offsetting losses in energy and soft commodities. The leverage fund community, which includes hedge funds and CTA’s reacted to these mixed signals by cutting their overall net exposure by 134,000 contracts to 917,000 contracts, representing an $8 billion reduction in the nominal exposure to $73 billion. The 134k reduction was the result of 36k long liquidation and 98k contracts of fresh short selling.
Commodity sector:
The Bloomberg Commodity index traded flat on the week with gains in metals and grains offsetting losses in energy and soft commodities. The leverage fund community, which includes hedge funds and CTA’s reacted to these mixed signals by cutting their overall net exposure by 134,000 contracts to 917,000 contracts, representing an $8 billion reduction in the nominal exposure to $73 billion. The 134k reduction was the result of 36k long liquidation and 98k contracts of fresh short selling.
The biggest reductions were seen in crude oil, gold, corn, wheat, as well as coffee and cotton.