Summary
Positioning changes last week across most asset classes were limited. Key features to note were as follows: i) The value of net LONG positioning in WTI fell to its lowest level in over a year; ii) Net positioning in the VIX turned LONG for the first time in several months (albeit only just); and iii) Net LONG positioning in precious metals increased, most notably in platinum and silver (which are at their highest level since March and August respectively).
As oil prices continued to decline last week and the WTI price officially entered a bear market, net speculative LONG positioning also declined (with the USD value of the positioning now at its lowest level in over a year, FIG A). Over the weekend OPEC and other major oil exporters discussed potential production cuts in reaction to the recent drop in prices. That supports our view, based on a combination of technical and fundamental factors, that prices should soon find a floor and start to rally. In expectation of that, we began building LONG positions in oil futures last week (for detail see Macro Trade Recommendation No. 94, 6th November 2018: "Start BUILDing LONG Oil Positions").
FIG A: WTI futures price (USD/bbl) vs. net speculative LONG/SHORT positioning (in USDbn, i.e. value)
In the equity market, speculators remain fearful. Reflecting this, net positioning in the VIX turned LONG last week (i.e. despite the VIX falling notably in recent weeks, FIG B). Positioning changes in other equity indices behaved similarly with net LONG positioning in both S&P500 & DJIA futures declining, while net positioning in NASDAQ100 futures turned SHORT (figs 7 – 9).
FIG B: VIX vs. net speculative LONG/SHORT positions
Net speculative LONG positioning increased across all four precious metals that we track last week. That was particularly marked in platinum futures, where speculators increased net LONG exposure by almost 10,000 contracts to the highest level since March (FIG E).
Points of note
Currencies: Net speculative positioning in the BRL has turned LONG for the first time since February this year (fig 18). That primarily reflects the unwinding of SHORT positioning since the real began to strengthen in September (that strengthening was due to an improvement in Bolsonaro’s standings in the Brazilian election polls – for detail on the outlook for the Brazilian economy see Global Macro Report, 25th October 2018: “Brazil: Inflection Point”). Despite recent USD strength, the value of aggregated net LONG positioning in the US dollar continues to fall (FIG C). In that respect, investors’ positioning was more bullish (or less bearish) last week on 6 of the 10 non-USD currencies that we track. With the Fed, though, unwavering in its intent to raise interest rates* (at least at present), and LONG USD positioning not particularly elevated, we would expect dollar strength to persist (i.e. at least until the Fed’s rhetoric changes).
FIG C: Aggregated USD value of net LONG/SHORT USD positioning vs. broad USD index
*This was displayed by the absence of any mention of recent equity market volatility in the Fed’s statement following the FOMC interest rate decision last week.
Bonds/rates: Bearishness on US Treasuries increased further last week, with net SHORT positioning increasing across all maturities that we track (albeit only modestly in each case). The aggregated net SHORT positioning in US 5, 10, and 30 year futures, whilst high, remains below the record level reached in late September (FIG D).
Commodities: In copper, net LONG speculative positioning increased modestly last week, despite weakness in the copper price. Positioning, though, remains broadly flat (fig 24).
FIG D: Combined US 5, 10 & 30 year USTs net speculative LONG/SHORT positions vs. 10 year note futures
FIG E: Platinum futures (USD/fine ounce) vs. net speculative LONG/SHORT positions
Please see HERE for charts of positioning in a wide variety of assets.
