Speculators’ first reaction to the stock market and bond market crisis
This COT report highlights futures positions and changes made by hedge funds in commodities, forex and financials up to last Tuesday 4th January. A week that dragged on a defeat in tech stocks US stocks from all-time highs to worries about higher interest rates amid US bond defeat. The commodities sector traded higher, mainly supported by the base metals and soft goods sectors, with the best individual performers being crude oil, soybeans, coffee and cotton.
In terms of market action around the New Year, the Nasdaq lost 1.3%, while the higher concentration of value stocks meant the S&P 500 traded almost flat. The dollar held steady while US 10-year Treasury yields rose 17 basis points to 1.65%.
Saxo Bank publishes weekly Commitment of Traders reports (COT) which covers leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure known as non-commercial.
The commodities sector traded higher, mainly supported by the base metals and soft goods sectors, with the best individual performers being crude oil, soybeans, coffee and cotton. These were offset somewhat by losses Natural gas, palladium, wheat and sugar.
Speculator reaction to these developments was relatively muted, most likely due to the time of year when books hardly reopened before the reporting week ended last Tuesday. Overall, the energy sector was led by purchases Brent Crude Oil and gasoline. Metals were mixed with gold selling offset by silver buying, the platinum short was cut in half while copper length rose 27%.
The agriculture sector saw strong demand for soybeans in response to crop concerns in Brazil, while ample supply caused the CBOT wheat short to rise 69% to a six-month high. In softs, selling sugar took the net long to a 17-month low, while the 7% rise in cotton longs lifted the long/short ratio to a very unhealthy 151 longs per short.
Latest comments from today’s Market Quick Take:
Crude Oil (OILUKMAR22 & OILUSFEB22) is trading steadily, with focus on resilient demand and limited fallout from the Omicron surge so far, along with the prospect of OPEC+ struggling to deliver on promised output increases as some producers get started have to reach their limits due to lack of investment.
To counter the near-term threat of even higher prices, supply disruptions are being eased in both Libya and Kazakhstan, but overall demand remains resilient, as indicated by the six-month Brent futures spread, which has widened more than since Omicron’s worry low in December doubled has point. Focus on EIA’s STEO and US CPI this week, as well as Omicron developments, particularly in China where the zero tolerance approach could hurt demand from lockdowns.
gold (XAUUSD) had a relatively strong first week of trading, with US 10-year real yields surging 30 basis points to a six-month high of -0.78%, partially offset by a weaker dollar and equities, as well as geopolitical risks and rising inflation, as evidenced by higher wage pressures seen in Friday’s US jobs report.
Yields have continued to rise overnight and the market is beginning to price in four Fed rate hikes in 2022, starting as early as March. Silver (XAGUSD), meanwhile, continues to find support around $22 ahead of the important double bottom at $21.42 while resistance is found at $22.65. Gold remains challenged while below the triple top at $1,830 and so far $1,783 has prevented an even deeper sell off.
In FX, speculative flows were mixed, resulting in the combined dollar being long against 10 IMM FX futures contracts and the Dollar Index remaining steady at $23.2 billion with purchases of EUR, CHF and GBP are offset by selling JPY and AUD.
What is the Commitments of Traders report?
The COT reports are issued by the US Commodity Futures Trading Commission (CFTC) and ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the US market close with data for the week ending on the previous Tuesday. They divide open interest in futures markets into different user groups depending on the asset class.
Raw materials: producer/trader/processor/user, barterer, Managed Money and other
Finance: traders/intermediaries; Wealth Manager/Institutional; Leveraged Funds and other
Forex: A rough breakdown between commercial and noncommercial (speculators)
The reasons why we mainly focus on the behavior of the highlighted groups are:
- They probably have close stops and no underlying commitment that is secured
- She does most reactive to change on fundamental or technical price developments
- It offers views over main trends but also helps to decipher when a reversal threatens
This article is provided by Saxo Capital Markets (Australia) Pty. ltd, part of the Saxo Bank Group, via RSS feeds on FX Empire