Crude length cut ahead of Israeli strike; silver and platinum see strong demand – Saxo Bank
Commodities:
In the latest reporting week, the Bloomberg Commodity Index rallied 1.8%, thereby fully recouping losses in the previous week. All sectors except softs saw higher prices, led by precious metals, where all metals saw demand amid haven demand ahead of the US elections, with silver jumping more than 10% after breaking resistance-now-support at USD 32.50. The energy sector, except natural gas, grains and livestock, recorded gains elsewhere, while industrial metals were muted as the China stimulus rally deflated.
Managed money accounts, such as hedge funds and CTAs, and responded to these developments with a mixed and somewhat counterintuitive reaction, not least in the energy sector, where traders sold into the rally for a second week. This highlighted a market where traders had correctly started to price out the risk of a major disruption to oil flows from the Middle East. Crude oil slumped more than 4% in early Monday trading after Israel’s limited attack on Iran avoided the nation’s energy infrastructure, thereby reducing the risk of a disruption and potentially signalling a de-escalation. Prices have now retraced most of the early October China stimulus and Iran supply risk boost, weighed down by sluggish demand and the risk of a rising supply of currently unwanted barrels from OPEC+ next month.
In metals, the silver net long jumped to a 31-month high at 47.4k contracts, a level which on four previous occasions since mid-2020 had triggered profit-taking and long-liquidation. It is, however, also worth noting that the all-time high reached in April 2017 was more than double that at 99k contracts. The net long in platinum also reached a 31-month high at 25k contracts, and just like silver, a level which has been a top and price reversal on several occasions since 2020. The palladium short was cut ahead of an end-of-week surge triggered by Russian sanctions talk, while copper selling continued as the impact of China’s stimulus faded.
Grains traded mixed with the selling of soybeans being more than offset by demand for soybean oil and corn, the behaviour in the latter highlighting a great deal of uncertainty after both the gross long (+38k) and the gross short (+23k) received a boost. Finally, the softs sector, except cotton, saw selling amid improved weather in key production regions, which lowered cocoa and coffee prices. Livestock, an area we normally do not give that much attention, has seen five consecutive weeks of buying drive the live cattle net long to a one-year high at 90k and lean hogs
Energy: Selling of crude oil, led by WTI, while the distillate (diesel) short in London and New York both rose. A week of heavy natural gas selling saw the net flip back to a short.
Metals: Big buying weeks for silver and platinum, both seeing their net longs rise to levels previously led to some profit-taking. Steady demand for gold near record highs.
Forex:
Speculators’ demand for dollars accelerated in the week to 22 October, when the Bloomberg Dollar index rose 0.7% amid a rise in US Treasury yields as traders positioned themselves for the risk of a potential Red Sweep on November 5. A result that may lead to excessive government spending, pushing the debt-to-GDP ratio higher while fueling inflation fears, potentially slowing further the pace of expected rate cuts, thereby making the Greenback relatively more attractive from a rate differential perspective.
The net dollar, long against eight IMM currency futures, jumped by 10.9 billion USD to a 3-1/2 month high. Except for the AUD, selling was broad, led by JPY and CAD, and not least EUR, where the most aggressive four-week selling period since November 2015 resulted in the biggest net short in two years after speculators sold 45.7k contracts, the equivalent of USD 6.2 billion.
Last Updated on 3 months by News Desk 1
