Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
COT: Crude selling slows; grains in demand
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, forex and bonds during the week to last Tuesday, November 14. A week that saw continued strong gains across stock markets after weaker than expected US economic data supported a growing belief that a soft landing could end the Federal Reserve’s aggressive rate hike campaign. The commodity sector recorded a small gain during a mixed week that saw 15 out of the 24 commodities trade higher led by grains, crude oil and metals like copper and silver.
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.
Commodity weekly: Crude overshoots; silver the comeback kid
Global Market Quick Take: Europe – 20 November, 2023
This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, November 14. A week that saw continued strong gains across stock markets after weaker than expected US economic data supported a growing belief that a soft landing could end the Federal Reserve’s aggressive rate hike campaign. Bond yields extended their recent decline while the dollar continued to soften. The commodity sector traded mixed with gains in precious metals and agriculture offsetting losses in energy and industrial metals.
Commodity sector:
The commodity sector recorded a small gain during a mixed week that saw 15 out of the 24 commodity futures trade higher led by grains, crude oil and metals like copper and silver. The prospect for peak rates and with that lower funding costs helped offset the potential negative demand impact from softer growth, while weather concerns in South America supported a strong week for soybeans and corn.
Speculators such as hedge funds and CTA’s responded to this development by offloading additional crude oil exposure, and despite a small price bounce both WTI and Brent continued to suffer from the recent loss of momentum. The metal sector was mixed with profit taking seen in gold while under owned silver finally managed to attract fresh demand. The platinum short surged to a 14-month high while the copper short jumped 49%, both developments leaving traders unprepared for end of week rallies.
The grains sector saw the strongest gains with dry weather concerns in Brazil's massive Mato Grosso state hurting the outlook for soybeans, and with that the availability of bean oil and bean meal, the two best performing futures contracts during the reporting week.
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