open interest

Investors finally believe the Fed Financial markets kicked off the week on a weak note, but not because of the Wagner's mini, failed, or fake coup over the weekend, but because of the diminishing rate cut bets for the Federal Reserve (Fed) for this year - and the beginning of next year.   Activity on Fed funds futures gives more than 75% chance for another 25bp hike in July, and there is expectation for one more rate hike after that. A set of soft data could do the magic of bad news is good news, and that investors could gently return to longer-term quality bonds, as despite what the Fed says, the end of tightening is certainly near. We saw a heavy slump in open interest in US government bonds as a result of waning dovish bets, but we also see the US 2-year yield slump below a two-month rising trend this morning, as the 10-year yield remains paralyzed a touch below the 3.75% level. The dollar index hardly challenges the 50-100-DMA area, and the stock markets are down, with the S&P500 steadily giving back gains, while MAMAA stocks are seen most vulnerable to a further downside correction due to the recent AI-led rally. Nvidia for example lost almost 4% yesterday, while Tesla fell more than 6%. Small caps, on the other hand, were better bid this Monday, as a sign of a portfolio rebalancing effect before the quarter ends. In this respect, the Russell 2000 index saw support and traded above its 100-DMA despite a broad-basedselloff in big caps, and especially in Big Techs.      The softer US dollar maintains the EURUSD above the 50-DMA, near 1.0875. News from Germany were less than ideal yesterday. The German business climate and expectations deteriorated faster than expected in June, but the Spanish producer prices fell nearly 7% versus a steady deceleration of 4.5% expected by analysts. Slower inflation is the only way to soften the European Central Bank (ECB) rate hike expectations. The Italian PPI, due Wednesday, is expected to print a nearly 10% slump y-o-y in May, and more than 6% slump just in May.   Today, US durable goods orders and house prices will be under close watch while Canada will release the latest set of CPI data. Both headline and core inflation are expected to slow, as a result of continued policy efforts to bring price pressures lower. The dollar-CAD drifts lower, due to a hawkish Bank of Canada (BoC) stance and despite selling pressure in crude oil. The pair is now at the lowest levels since September and is preparing to test the 1.30 support shortly.   Speaking of oil, the barrel of US crude remains steady at around the $70pb level, bulls don't want to join in given the hawkish central bank stances and rising recession odds, while bears are not willing to push hard, as the geopolitical uncertainties maintain a high level of upside risks.   OPEC lately claimed that the global oil demand would rise to 110 mio barrels per day, with a 23% rise in overall energy demand expected by 2045. That goes perpendicularly against the IEA forecast of higher short-term demand but waning long term demand for oil because of energy transition to greener sources. You believe who you want to believe but the higher the traditional, dirty energy prices, the faster the transition will be.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  

The Commodities Feed: Supply risks vs demand concerns Commodity markets largely shrugged off developments in Russia over the weekend, with the focus now back on China demand concerns and the US Federal Reserve.   Energy – Rangebound crude Energy markets largely shrugged off events over the weekend in Russia. Oil opened strongly yesterday, but gave back a lot of these gains as the day progressed. As a result, ICE Brent settled just 0.45% higher on the day. The more hawkish tone from the US Fed appears to be capping oil prices and the broader commodities complex, while there remain broader concerns over China’s economic recovery. Up until now, oil demand indicators for China have been good, with stronger crude oil imports and higher apparent domestic demand. The concern is whether this can continue as there are clearly still some weak spots within the Chinese economy – specifically with industrial production and the property sector. For the oil market, there is little on the calendar for today. ICE Brent August options expire today, which will be followed by the August futures expiring on Friday. The latest open interest data (which is up until Friday) shows that there is still open interest of more than 17k lots at the $75 strike for August call options. Meanwhile, we will also get US inventory numbers from the American Petroleum Institute (API) later in the day. The European natural gas market had a volatile trading session yesterday with TTF trading in a range of EUR5.40/MWh over the day. Obviously, there would have been concerns over the remaining Russian pipeline flows to Europe following developments in Russia over the weekend. However, fundamentals for the European gas market are still bearish in the short term. EU gas storage continues to fill up and is now more than 76% full, well above the 57% seen at the same stage last year and also higher than the five-year average of 60%. In the absence of any significant supply shocks, EU gas storage will hit the European Commission’s target of 90% full well before 1 November. This suggests that later in the summer we could see further pressure on prices and a deeper contango along the forward curve – there is already an almost €20/MWh contango between the August 2023 and December 2023 TTF contract.  

Gold gains after data fuels hopes of a Fed pause Gold prices are moving higher following the latest batch of softer-than-expected US economic data, which has caused investors to trim bets on a Federal Reserve hike next month.   US economic data in focus Ten-year Treasury yields have continued to decline after recently hitting levels last seen in 2007, after US data releases this week signalled that the US economy is cooling, easing pressure on the Federal Reserve to continue raising rates. US inflation in July was in line with expectations, second-quarter economic growth was revised lower, and private payrolls increased less than expected in August. This followed data released earlier this week that showed job openings have fallen to their lowest level since early 2021. Focus will now turn to the headline US labour market report which is due later today. The latest data releases have lowered expectations that the Fed will raise interest rates this year. The central bank hiked rates by 25 basis points at its July meeting as economic data was strong. Both higher rates and yields are typically negative for non-interest-bearing gold.   Gold holds above $1,900/oz Gold has been unable to break the $2,000 level since mid-May     Federal Reserve Chair Jerome Powell said at the Jackson Hole conference last week that the Fed plans to keep policy restrictive until it is confident that inflation is steadily moving down toward its target. We will need to keep a close eye on US data releases in the coming weeks, which could shed more light on what the Fed may do. We believe gold will remain volatile in the near term given the implications of the uncertainty of persistent inflation on the US economy, and its trajectory will be influenced by US economic data in the coming weeks. We believe the threat of further action from the Fed will continue to keep the lid on gold prices for now.   ETFs continue to see outflows The rebound in gold prices has failed to draw buying interest from investors in exchange-traded funds or the Comex futures market. Gold ETF positioning, typically a strong driver of price direction, has been falling with holdings tumbling for a third month in August.   Hedge funds turn more bearish on gold   Hedge funds and other large speculators have also reduced their net long positions in gold, according to the latest CFTC data for the week ending 22 August. Net long positions in gold fell by 44.75% to 79.9 tonnes, equivalent to 25,695 contracts. Open interest decreased to 581,386 contracts from 598,932 contracts. Outright long positions declined by 7.33% or 28.5 tonnes, to 360.1 tonnes or 115,766 contracts. Short positions rose by 14.89% to 280.2 tonnes or 90,071 contracts          

BOC rate hike odds for the October 25th meeting rise from yesterday’s 23.9% to  28.8% Hours worked climbed to the highest level since February CAD futures open interest rise to best levels since mid-March Canada’s economy isn’t quite ready to cool.  The latest Canadian employment report showed hiring bounced back in August, doubling expectations. The near 40,000 added jobs exceeded the 17,500 consensus estimate and proved that the prior month’s unexpected shedding of jobs was not the beginning of a new trend.  The BOC will pay close attention to the wage growth acceleration of 5.2%, which was expected to soften to 4.7%. There is a lot of data before the October 25th BOC meeting, but it still seems like they’ve reached the terminal rate for this tightening cycle.   Open Interest in Canadian dollar futures The Canadian dollar is the top performing G10 currency and that could continue given how the futures market is positioned.  The last time open interest for Canadian dollar futures were at these levels was the middle of March, which was when USD/CAD started its decline from around the 1.37 level to the 1.3300 area.   Canada’s strong jobs report showed full-time employment rebounded from 1,700 to 32,200, while part-time work created 7,800 jobs, much better-than-the prior month’s decline of 8,100 positions.  The unemployment rate held steady at 5.5%, which was better than the expected increase of 5.6%.    The majority of the job gains stemmed from the professional and technical services, and construction.  The regions that benefited the most were Alberta, British Columbia and Prince Edward Island.  Nova Scotia was the only region that lost jobs.  While the job gains are a positive sign, when you figure in population growth, this pace won’t cut it for keeping the unemployment rate steady.  About 50,000 jobs per month would be needed to support a steady unemployment rate.   USD/CAD 60-minute chart After breaking down below the 1.3650 level, bearish momentum is slowing down ahead of the 1.3600 level.  If the start of next week does not include a risk averse start, the Canadian dollar could have a strong move here.  Unless the uptrend line (which started in July) is broken substantially to the downside, the prevailing bullish trend may remain in place.