Summary
Price action last week was turbulent across all major asset classes. In particular, 10-year Treasury yields peaked above 3.2% on Friday, oil prices reached another four-year high above $86, and the S&P fell around 1% over the week (with more dramatic moves in the Russell 2000 mid-caps, the Philly SOX, and other global equity indices). With that fall in equities, investors began shifting into some safer assets, with gold prices and the swiss franc, among other safe haven assets, strengthening on Friday.
The yen, in particular, has also strengthened overnight (rising 0.4% since Friday’s close). Interestingly, net SHORT speculative positioning in the yen moved sharply higher last week (but note that positioning data is only collected up to the close on Tuesday).
FIG A: JPY-USD (scale inverted) vs. net speculative LONG/SHORT positions
The bond market sell-off was marked by the rise in Treasury yields across the curve. With that, bond volatility has picked up (see implied bond volatility MOVE index – FIG B). Of note, the sell-off has occurred at a time when net SHORT positioning in Treasuries is already extremely bearish (see figs 1 – 4). In last week’s Longview on Friday, we outline why we view the sell-off as an opportunity to buy bonds for the medium term, i.e. on a multi month timeframe (see LV on Friday, 5th October 2018: "Bonds: The Blow-off Top").
FIG B: Implied bond and equity volatility (i.e. MOVE & VIX indices, %)
Oil prices are up 26% YTD (Brent), reflective of the tightening market, and more recently on supply shortage speculation with regards to Iran. Investors and key pundits have called for a price spike in coming months as Iranian sanctions start to bite. Positioning in oil futures, however, is already reasonably bullish (FIG C below). Later this week, we will update our oil price view – see forthcoming Commodity Fundamentals Report.
FIG C: Oil futures price (USD/bbl) vs. net speculative LONG/SHORT positioning (in USDbn, i.e. value)
Points of note
Bonds/rates: Bearish positioning in 30-year futures reached a new record last week (with net SHORTs now over 220,000 contracts). Positioning across the rest of the curve was similarly bearish with an increase in net SHORTs in 2-year and 5-year futures (but a decrease in net SHORTs in 10-year futures – see figs 1 – 4). Speculators in eurodollar futures continued to remove bearish positions, with net SHORT positioning now at its lowest level since January (fig 6).
Equities & volatility: Bullish speculative positioning in equities continued to increase last week with net LONG positioning in S&P and DJIA futures again higher (NB data is collected on Tuesday – see figs 7, 8, & D). In a similar vein, positioning in VIX futures remains heavily net SHORT– and at a record level for 2018 (fig 10).
Commodities: In energy, the increase in net LONG positioning in natural gas futures was noteworthy. In particular, net positioning is now net LONG for the first time since early this year (and is typically a rare occurence – see fig 22). Aggregate positioning in precious metals remains roughly flat (fig E), although positions in silver futures (fig 26) has just returned to an overall net LONG (after being net SHORT for the first time in recent weeks since the data began). In agricultural commodities, notable moves include the surge in net SHORTs in rice and cocoa futures (with cocoa speculative positioning now net SHORT for the first time in over a year – figs 32 & 37).
FIG D: Aggregated major US equity positioning vs. S&P500 index
Currencies: Changes in positioning for most major currency futures were bullish last week. Most notably, net LONGs in the Mexican peso surged (fig 19), while bullish positioning in the GBP and CAD (figs 13 & 16) also increased. Conversely, speculative positioning in the euro and Swiss franc became more bearish (figs 11 & 14).
FIG E: Aggregated precious metals positioning vs. GSCI precious metals index
Please see HERE for charts of positioning in a wide variety of assets
