Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Speculators bought energy and grains, sold gold ahead of US elections
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 leading up to last Tuesday, 5 November—the day of the US elections.
- Speculators bought euros, sold yen and sterling, overall leaving an elevated dollar long nearly unchanged.
- Temporary buying of crude oil and emerging profit-taking in precious metals amid dollar and yield strength.
- The agriculture sector saw increased demand for grains, led by soybean oil and corn, while the livestock long hit a seven-year high.
Forex:
Speculators spent the days leading up to the US elections cutting exposure on both long and short positions. Overall, this left the gross dollar long versus eight IMM futures down just 3% to a yet elevated USD 17.7 billion. Exceptions to the risk reduction focus were the JPY and CAD, where speculators increased existing short positions in both. As per the table below, the biggest changes were a USD 3.9 billion equivalent reduction in the EUR short, a USD 1.7 billion equivalent reduction in the GBP long, and the mentioned USD 1.6 billion equivalent increase in the JPY short.
Commodities:
In the latest reporting week, the Bloomberg Commodity Index rose 0.7%, partly reversing losses from the previous week, with gains in energy, industrial metals, and grains more than offsetting losses in precious metals and livestock. The reporting week included all market action until a few hours before Donald Trump and the Republican Party’s resounding victory in the US elections became known.
Renewed, but as it turned out, temporary strength across the energy sector saw speculators rush back into crude oil and distillates (diesel), lifting the combined WTI and Brent positions by 54% to 220,000 contracts, while short covering reduced the gas oil short by 65%. Elsewhere, emerging profit-taking across precious metals saw the gold net long reduced to a three-month low, while a second week of selling lowered the silver net long to a two-month low. Both metals, including platinum, traded lower on profit-taking ahead of the US elections, weighed down by dollar strength and rising Treasury yields.
The grains sector short position was further reduced amid strong demand for soybean oil due to surging prices, supported by robust export demand and a rally in rival palm oil prices driven by concerns over lower-than-expected outputs. The bean oil long reached a 20-month high, while corn flipped back to a net long for the first time in 15 months. The softs sector, meanwhile, saw mixed trading, with net selling in sugar and coffee being the main feature, while livestock length continued to increase despite some emerging price weakness.
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:
1 Nov 2024: Commodity weekly: Some weakness seen ahead of critical week
31 Oct 2024: Crude prices seek stability ahead of key support and US elections
30 Oct 2024: Will the US election result spark a gold correction?
29 Oct 2024: Podcast: Electrification's surge impact on commodities and equities
28 Oct 2024: COT: Crude length cut; silver and platinum see strong demand
25 Oct 2024: Commodity weekly: Market jitters on the rise ahead of U.S. elections
23 Oct 2024: Crude prices stalled by two-sided market risks
22 Oct 2024: Gold and silver's remarkable run in four charts
22 Oct 2024: Podcast: The Trump trade enters the metal market
21 Oct 2024: COT: Dollar shorts squeezed; Shift in commodity exposure from energy to metals
18 Oct 2024: Commodity weekly: Gold's record-breaking run continues
17 Oct 2024: Copper prices decline amid doubts about China stimulus impact
16 Oct 2024: How high can gold and silver rally?
8 Oct 2024: Podcast: Navigating market shifts: Fed rate cuts, commodities and rising food prices
8 Oct 2024: Video: These commodities might be impacted by the US election
7 Oct 2024: Crude oil surge caps strong four-week rally for commodities
7 Oct 2024: COT: Broad buying momentum persists, led by Brent, copper and grains
2 Oct 2024: Q3 2024 Commodity Outlook: Gold and silver continue to shine bright
30 Sept 2024: COT: Fed and PBOC trigger largest weeklyl surge in commodities demand in a decade
27 Sept 2024: Commodity weekly: Industrial metals gain strength during a week of crude weakness
26 Sept 2024: Crude prices drop again as Saudi and Libya supply concerns grow
24 Sept 2024: Fed and PBOC add momentum to commodities market rebound
23 Sept 2024: COT: Dollar short reduced; Investment metals see strong demand ahead of FOMC
20 Sept 2024: Commodity weekly: Commodities boosted by bumper rate cut
20 Sept 2024 Video: Gold or silver, which metal will perform the best
17 Sept 2024: With gold reaching new heights, silver shows potential
16 Sept 2024: COT: Record short Brent and gas oil positions add upside risks to energy
11 Sept 2024: Crude slumps amid technical selling and recession fears
10 Sept 2024: US Election: will gold win in all scenarios
9 Sept 2024: COT: Crude long cut to 12-year low; Dollar short more than doubling
5 Sept 2024: Can gold overcome the 'September curse'?
4 Sept 2024: Wheat rises on European crop worries
3 Sept 2024: Chinese economic woes drag down crude oil and copper
2 Sept 2024: COT: Commodities see broad demand as the USD slumps to a net short
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