net long position

The Commodities Feed: More positive US data Oil edged higher yesterday following some good US macro data. However, this data also increases the likelihood of further rate hikes. And the expectation of further hikes will ultimately provide resistance to commodity prices moving significantly higher.   Energy - ARA gasoil inventories fall further The oil market managed to edge higher yesterday with ICE Brent settling a little more than 0.4% higher on the day. This follows first-quarter US GDP being revised significantly higher, while jobless claims also fell over the week. However, stronger-than-expected US macro data also increases the likelihood of further rate hikes from the Fed.  Growing expectations of further hikes is one of the factors which is capping the upside in the market, while on the downside, the belief that OPEC+ will take further action if there is significant further weakness provides a floor to the market. As a result, the oil market continues to trade in a fairly rangebound manner. The latest data from Insights Global shows that gasoil inventories in the ARA region fell by 35kt over the last week to 2mt. This is the lowest that gasoil inventories have been in the region since December and stocks are now around 300kt below the 5-year average for this time of year. It is this tightening which continues to provide support to middle distillates with the ICE gasoil crack continuing to trade around the US$20/bbl level. Refinery outages have contributed to the tightening, but a return of these refiners, the ramping up of new capacity over 2H23 and demand concerns suggest that further upside is likely limited. China will be releasing PMI data today. The manufacturing PMI has been in contraction territory for the last two months and the expectation is that we will see yet another contraction over June. A weak set of data will not be great for commodities, particularly for the metals complex. Other releases on the calendar for today include the Baker Hughes US rig count data. And if the trend seen for the last several months holds, we will likely see a further slowdown in US drilling activity. In addition, the CFTC and ICE will be releasing their latest Commitment of Traders reports. Price action over the last reporting week suggests that speculators should have reduced their net long position in ICE Brent.

Agriculture–USDA sees soybean acreage falling In its latest Prospective Plantings report, the USDA estimates soybean plantings will drop significantly while corn acreage will rise this year. The agency projects 2023 soybean acreage at 83.5m acres, significantly lower than the March estimate of 87.5m acres and the market expectation of 87.7m acres. The US planted 87.5m acres of soybeans in 2022. In contrast, the USDA projects 2023 corn plantings to reach 94.1m acres (the highest since 2013), which is higher than the March estimate of 92m acres and the 88.6m acres planted in 2022. The market was expecting a number closer to 91.9m acres. Wheat planting estimates were trimmed to 49.6m acres, which was in line with expectations, and down from the 49.9m acres projected in March but higher than the 45.7m acres planted in 2022. CBOT futures were quick to react to the unexpected numbers with CBOT soybeans settling more than 6% higher on Friday, whilst CBOT corn settled more than 6% down on the day. The USDA also released its quarterly stocks report (as of 1 June) last week, which showed a drop in US grain inventories. The agency reported corn inventories at 4.11bn bushels, down 6% YoY and lower than the market expectation of around 4.25bn bushels. For soybeans, the agency reported inventories of 796m bushels, down 18% YoY and below market expectations of around 805m bushels. Similarly, wheat inventories were reported at 580m bushels, down 17% YoY and lower than the 613m bushels the market was expecting. The latest CFTC data shows that money managers reduced their net bearish bets in CBOT wheat by 31,966 lots to 52,168 lots as of 27 June, the lowest in seven months. The move was predominantly driven by a 33,030 lot reduction in the gross short position. Speculators cut their net long position in CBOT corn by 5,454 lots to 52,845 lots over the last reporting week. Meanwhile, speculators increased their net long in CBOT soybeans by 22,530 lots to 99,480 lots as of last Tuesday. Given the price action last Friday, it is likely the next positioning report will show a further boost in the soybean net long and a further reduction in the corn net long.

The ADP report on employment in the private sector, published a day before the non-farm payroll data release, was so shocking that it instantly raised expectations for the labor market as a whole, leading to rapid repositioning on Friday before the data release. However, the non-farm payroll figures were significantly weaker than expected, with 209,000 new jobs created (225,000 expected), and data for the previous two months were revised downwards by 110,000. Employment growth is slowing, but the pace remains high. As for wage growth, the figures were an unpleasant surprise for the Federal Reserve. In June, wages increased again by 0.4% instead of the expected 0.3%, and annual growth rates remained at 4.4%, which is higher than the 4.2% forecast. Steady wage growth does not allow inflation expectations to fall, the growth of real rates does not allow the Federal Reserve to start lowering the rate this year.       The U.S. inflation index, which will be published on Wednesday, is the main event of the week and the last important data before the Fed meeting at the end of July. The markets expect an 89% probability of a quarter-point rate hike. Furthermore, the probability of another increase in November has already exceeded 30%, and the first cut is now expected only in May of next year. The U.S. dollar fell after the data release and ended the week weaker than all G10 currencies. The growth of real rates in the current conditions makes a recession in the U.S. almost inevitable.   EUR/USD The Sentix Economic Index for the eurozone has fallen for the third time in a row to -22.5 points, a low since November 2022, and expectations also remain depressed. The eurozone economy has fallen into a recession as of early July. The situation in Germany is even more depressing – the index has fallen to -28.5 points, and the possibility of improvement is ephemeral.     The ZEW index will be published on Tuesday, and the forecast for it is also negative, with a decrease from -10 points to -10.2 points expected in July. On Thursday, the European Commission will present its forecasts. Bloomberg expects that industrial production in the eurozone fell in May from 0.2% y/y to -1.1% y/y, a sharp decline that characterizes the entire eurozone economy as negative and tending to further contraction.   Under the current conditions, the European Central Bank intends to continue raising rates, and even plans to shorten the reinvestment period of the PEPP program. If this step is implemented, a debt crisis, which will put strong bearish pressure on the euro, is inevitable in the face of capital outflows to the U.S. and an expanding recession.   The net long position on the euro has hardly changed over the reporting week and amounts to just over 20 billion dollars, positioning is bullish, there is no trend. However, the calculated price is still below the long-term average and is trending downward.     The euro attempted to strengthen on Friday in light of the news, but it was unable to rise beyond the borders of the technical figure "flag", let alone higher than the local high of 1.1012. We assume that the corrective growth has ended, and from the current levels, the euro will go down, the target is the lower boundary of the "flag" at 1.0730/50. GBP/USD Updated data on the UK labor market will be published on Tuesday. It is expected that the growth of average earnings including bonuses increased in May from 6.5% to 6.8%, and if the data comes out as expected, inflation expectations will inevitably rise. As will the Bank of England's peak rate forecasts. The NIESR Institute expects that further rate increases could trigger a recession.   The cost of credit is rising, and an increase in the volume of bad debts is inevitable in an economic downturn. Inflation did not decrease in May, contrary to expectations, and remained at 8.7%, even though energy prices significantly decreased. Food inflation on an annual basis reached 18.3%, and core inflation at 7.1% is at its highest since 1992. The labor force is decreasing, and if this trend is confirmed on Tuesday, it will almost inevitably result in increased competition for staff, which will mean, among other things, the continuation of wage growth. The Bank of England has already raised the rate to 5%, with forecasts implying two more increases. What does the current situation mean for the pound?   If the economy can keep from sliding into a recession, then in conditions of rising nominal rates, the yield spread will encourage players to buy assets, leading to increased demand for the pound and its strengthening. However, if signs of recession intensify, which could be clear as soon as Thursday when GDP, industrial production, and trade balance data for May will be published, the pound will react with a decrease, despite high rate expectations. After impressive growth two weeks ago, pound futures have stalled at achieved levels, a weekly decrease of just over 100 million has no significant impact on positioning, which remains bullish.  

Metals: Codelco lowers copper output guidance Codelco has lowered its 2023 annual production guidance to 1.31mt-1.35mt, from its previous guidance of 1.35mt-1.42mt, as it expects more production halts in the second half of the year. The revised output guidance includes the recent damage at its El Teniente underground mine which is expected to curb production levels. Codelco’s copper output has declined 14% year-on-year to 633kt over the first half of the year, while quarterly output also declined 17% YoY in 2Q23, primarily due to project delays and accidents at mines. Weekly data from the Shanghai Futures Exchange (ShFE) shows that inventories for base metals remained mixed over the last week. Copper weekly stocks fell by 16,608 tonnes (-21.3% week-on-week) for a second consecutive week to 61,290 tonnes, while aluminium inventories declined by 2,049 tonnes (-1.8% WoW) to 110,996 tonnes as of Friday. In contrast, weekly exchange inventories for zinc, lead and nickel rose by 7.7%, 20.4% and 13.9%, respectively, at the end of last week. In steel, US Steel confirmed that it has idled a blast furnace out of three in Slovakia. A blast furnace at US Steel Kosice has been temporarily idled for about 40 days amid seasonally weak demand. The shipments from the facility are expected to be 10kt lower in 3Q23 compared to the previous quarter. Lastly, the latest CFTC data shows that speculators increased their bullish bets in COMEX copper by 2,803 lots for a second consecutive week over the last reporting week, leaving them with a net long position of 13,502 lots as of last Tuesday. In precious metals, speculators decreased their bullish bets in COMEX gold by 19,616 (after increasing for three consecutive weeks), to leave them with a net long of 116,291 lots as of the last reporting week.

Metals – China's copper exchange inventories drop further Weekly data from Shanghai Futures Exchange (ShFE) show that inventories for base metals remained mixed over the last week. Copper stocks fell by 9,138 tonnes (-15% week-on-week) for a third consecutive week to 52,152 tonnes (the lowest since the week ending on 30 September 2022) as of last Friday. In contrast, inventories of other major metals reported inflows, with aluminium inventories rising by 1,811 tonnes (+1.8% WoW) to 112,807 tonnes at the end of last week. Meanwhile, weekly exchange inventories for zinc, lead and nickel rose by 1.1%, 5.7% and 9.7% respectively as of Friday. Meanwhile, the latest CFTC data show that speculators increased their bullish bets in COMEX copper by 8,011 lots for a third consecutive week over the last reporting week, leaving them with a net long position of 21,513 lots as of last Tuesday. Moving to precious metals, speculators decreased their bullish bets in COMEX gold by 16,954 for a second straight week, to leave them with a net long of 99,337 lots, while increasing their net long in silver by 7,487 lots as of last Tuesday.

Looking at our gold monitor below, it is difficult to build a bullish case for gold if current developments were the only driver for the yellow metal. With the dollar and bond yields on the rise, the inverse correlation with a relatively stable gold has deteriorated, a development that has reduced selling pressures from algorithmic trading strategies, normally a major contributor to daily trading volumes. In addition, as mentioned the tailwind from future rate cuts has also faded as the market price in a higher for longer scenario. A development which for now continues to see some asset managers vote with their feet when it comes to investing in gold through Exchange-traded funds, the reason being the high opportunity cost of holding a non-interest paying position relative to short-term government bonds. The current cost of holding a gold position for 12 month is close to 6%, the bulk of that being the cost of borrowing dollars for one year, and until we see a clear trend towards lower rates and/or a upside break forcing a response, real money allocators will be looking for opportunities elsewhere. ETF investors which include the above mentioned group of real money allocators have been cutting holdings for the past four months, leaving the total down by 172.4 tons during this time to 2757.8 tons, a 3-1/2-year low. The leverage fund net long position meanwhile continue to hover around 60k contracts (6 million ounces), some 35k below the one-year average.  

Energy – OPEC crude oil production softens in November Sentiment in the oil market remains negative this morning, with both ICE and WTI futures trading almost 1% lower after the announcement from the OPEC+ meeting failed to convince the market about a tighter oil balance in the immediate term. Pessimism over compliance with the new deal remains one of the major concerns for the market for now. Initial data shows that OPEC crude oil production dropped to around 28.05MMbbls/d in November 2023 compared to 28.19MMbbls/d in October 2023, according to a Bloomberg survey. The BBG survey estimates that supply from Iraq and Nigeria dropped by 50Mbbls/d each, while Iran and Kuwait also lowered production by 40Mbbls/d each. Higher production from Saudi Arabia and Libya helped offset some of the production losses for the month. Weekly data from Baker Hughes shows that the US added five oil rigs over the last week, taking the total oil rig count to 505, whilst the gas rigs fell by 1, taking the total rig count (oil & and gas combined) to 625 for the week ended 1 December. US oil rigs have now increased to their highest level in nearly two months, although the recent weakness in oil prices could weigh on further rig additions over the coming weeks. The Al-Zour refinery in Kuwait is now fully operational as the third of the three mini refineries was brought online on Sunday. This will gradually increase the refining capacity of the facility to 615Mbbls/d from the current capacity of 410Mbbls/d. The plant halted its operational activities last month after a fuel gas feed was halted. Al-Zour is one of the largest oil-processing facilities in the Middle East and it is expected to boost the nation’s refining capacity to about 1.5MMbbl/d. The latest positioning data from CFTC shows that speculators decreased their net long position in NYMEX WTI by 6,408 lots for a ninth straight week over the last week, leaving them with net longs of 98,137 lots as of 28 November 2023, the lowest since the week ending on 4 July 2023. In contrast, money managers increased their net longs in ICE Brent by 11,630 lots over the last week after reporting five consecutive weeks of decline, leaving them with a net long position of 166,735 lots as of last Tuesday.