Sunday, August 18, 2019

Positioned for Pain

Not that they're always right, but folks who speculate in futures for a living are no doubt bright, and you can bet that they're deep in the weeds of information and general conditions when they place their bets.

Each week we review the Commodity Futures Traders Commission's (CFTC) Commitment of Traders Report (COT) to see what futures speculators think about the prospects for certain commodities and financial markets. Essentially, this gives us their real-time view of the world.

As you might suspect, when the world's building, copper (the most-used industrial metal) is rocking. Hence the nickname "Dr. Copper" (the metal, in some circles, holds an honorary PhD in economics). 

If futures speculators believe copper's on the rise, they go "long" (betting on more of the same) copper contracts, when they think copper's on the decline, they go "short".

Well, here's a 5-year graph of their net positioning:


Of course, on the opposite end of the metal spectrum there's gold; the safe-haven everybody supposedly runs to when the world's uncertain.

Here's what futures traders are thinking about (or what they think everybody else is going to be thinking about) the present (or future) state of the world:


The Japanese yen has to be the most utilized funding currency in today's carry trades: A currency carry trade is when a speculator borrows in a currency where he/she can get a low interest rate, then exchanges it for a currency where he/she can grab a higher rate, or game some other opportunity on the cheap. 

Each night I watch the yen very closely; I know that when futures traders are on (or believe the rest of the world is on, or about to be on) edge, the Yen tends to rise notably against other currencies (as traders unwind carry trades, and/or speculators anticipate that unwinding). 

Both of last week's big down days in stocks were preceded by a spiking yen the night before.

Here's how speculators are currently (net) positioned in yen futures:

Looks like they're less sanguine about the world today than they've been in quite a while!

And lastly, this past week I brought Brexit back to the blog, as we're getting close to that 10/31 deadline, and it's getting dicey. And, trust me, it carries serious implications for global markets.

So what do pound futures positions say about the prospects for a UK/EU trade deal?

Uh oh!!

No comments:

Post a Comment