Hedge funds propel multiple commodities positions
Iran’s well-flagged attack on Israel over the weekend triggered a muted reaction overnight in Asia, with Brent touching $91 before turning lower.
Crude prices already include a risk premium, and unless the market faces a real disruption to supply, the risk of an upside spike towards $100 remains limited.
All eyes are now on Israel and its response, especially after President Biden urged restraint and after Iran said they do not intend to continue strikes.
Gold trades a tad firmer after suffering a near $100 correction on Friday, but with a major risk premium already priced in and with the dollar being the short-term safe haven focus, the combination of yield strength following last week’s surge, the metal may struggle to regain last week’s strong momentum, instead entering a period of consolidation.
Watch support at $2320, followed by $2290.
Limited impact
On Friday, the US and the UK took further action to limit Russian profit from trading in its copper, aluminium, and nickel.
The latest order restricts Russian metals mined after April 13 from entering the metal exchanges in London and New York.
Traders responded to the news by sending aluminium and nickel higher on the Asian opening by around 9% before pairing back most of those gains in the realisation this action may not fundamentally change the overall supply-demand balance.
China holds an outsized influence on the mined metal market, a role that will only be strengthened by this action, leaving them in a position to force even deeper discounts from Russian suppliers.
COT on forex
In the forex market, flows ended up being somewhat mixed, but for a fourth week in a row, still skewed towards dollar buying, resulting in the gross dollar long vs eight IMM forex futures rising by 10% to $17.8 billion, a fresh 19-month high.
Selling of CHF, GBP, JPY and CAD was partly offset by short covering in EUR, nearly doubling the net-long, AUD, and continued demand for highinterest paying MXN, driving the net-long to a fresh four-year high.
The JPY net short jumped to 162k contracts ($13.5 billion), the highest since 2007, while the CHF short, at 32k contracts ($4.4 billion), was the highest in almost five years. COT on Commodities In the week to April 9, the Bloomberg Commodity Total Return index rose 2.2% to trade near a six-month high, led by strong gains across precious and industrial metals.
Excluding natural gas, the energy sector rose 2.2% and was among these three sectors managed money accounts from hedge funds to CTA’S focused their buying interest while the agricultural sector saw a very mixed reaction.
Overall, the big three markets of crude oil, copper and gold saw net buying which lifted the total net long to a July 2021 high at 772k contracts, representing a nominal value of $96 billion.
Weeks of buying in response to an improved technical and fundamental outlook for key commodities saw several positions extend beyond their one-year highs, most notably Brent, RBOB gasoline, gold, silver, HG copper, Arabica coffee, lean hogs.
Energy: All crude and fuel contracts saw net buying, with the combined net long reaching a fresh two-year high at 728k contracts, with the bulk being held in the two crude oil contracts of WTI (238k) and not least Brent (304k)
Metals: Gold’s 3.5% continued rally triggered no response from funds, highlighting an emerging reluctance to add more exposure at this stage. Silver’s 8% rally only managed to lift the net long by 13% to a two-year high.
Under-invested traders rushed into copper as the price broke higher, lifting the net long by 230% to a 2-½-year high.