Summary
Despite last week’s resumption of the SELL-off, there was no discernible pattern with respect to how market positioning changed. While speculators generally increased their exposure to safe haven assets, it was only modest (e.g. see the Longview safe haven positioning model, FIG A). Added to which, positioning changes in equities futures were mixed. Net LONG positioning in S&P500 futures declined but increased in DJIA futures.
Against that, though, there was a surprising increase in net SHORT positioning in US 30 year Treasury futures (which made a new record high, fig 4). That was despite US Treasury yields falling across the curve last week as Fed rate hikes continued to be priced out of the curve. Implied 2019 rate increases have declined from 54.5bps at the start of November to currently just 18.5bps (FIG B). Even as the market priced out rate hikes last week, though, net SHORT positioning in 2 year futures increased (fig 3).
FIG A: Longview ‘safe haven’ positioning model vs. S&P500
In oil (specifically WTI futures), net LONG positioning continued to fall ahead of the OPEC meeting that took place on Thursday & Friday last week (N.B. positioning data is collected on Tuesdays). While the OPEC announcement of a 1.2mbpd cut initially bolstered oil prices, they have since given back those gains (WTI is trading close to the bottom of its recent range, i.e. ~$50). Our latest fundamental oil market analysis points to a troubling environment for oil in coming quarters due to ongoing supply surpluses (for detail see Commodity Fundamentals Report No. 88, 21st Nov 2018: “Oil The Coming Supply Response”). Beyond that, though, the oil market should tighten in 2020 (i.e. move into deficit).
FIG B: Implied 2019 rate hikes (using Fed funds futures, %)
Points of note
Bonds/rates: While US Treasury yields fell across the curve last week, speculators only reduced net SHORT positioning in 10 year futures. In the other maturities we track the net SHORT positioning increased. This was most notable in 2 & 30 year maturities that are now at/close to record net SHORT levels (figs 3 & 4).
Currencies: Despite the USD stalling in recent weeks, aggregate net speculative LONG positions increased again for the fourth consecutive week (measured in USD value of positions, FIG C). This model includes net positioning in all the currencies we track (vs. the USD) as well as net positioning in the DXY. For the 6th consecutive week net SHORT positioning in the EUR increased, while net SHORTs in the CAD increased for the 4th week in a row (figs 11 & 16).
FIG C: Aggregated USD value of net LONG/SHORT USD positioning vs. broad USD index
Commodities: Net LONG positioning in gold & silver increased notably last week, although remains significantly lower than earlier this year (figs 26 & 27). With that, prices in both commodities increased notably last week. Positioning changes in other precious metals were mixed. Net LONG positioning increased in palladium but fell in platinum. Last week we again recommended starting to build LONG gold positions based predominantly on fundamentals & positioning (for detail see Macro Trade No. 95: “GOLD: Start BUILDing LONG exposure”). In copper, net LONG positioning increased but only modestly (fig 24).
Equities: Speculative positioning changes in equities were mixed last week. While net LONG positioning increased in DJIA futures, it fell in the S&P500 and turned SHORT in the NASDAQ100 (figs 7 – 9). Net LONG positioning in the VIX fell, despite the increase in volatility (fig 10).
Please see HERE for charts of positioning in a wide variety of assets.