Summary
Net positioning moved lower for most key US equity indices last week. The S&P500’s net LONG positioning fell again from its high net LONG position of a few weeks ago, while the NASDAQ positioning became increasingly net SHORT. NDX100 futures positioning is now at its most net SHORT since the SELL-off in early 2018 and at one of its most net SHORT levels in recent years (FIG A). That US equity market price weakness was typical at this stage immediately after a pullback. As highlighted in the Longview on Friday, 9th Nov 2018 ("Beware the ‘palpable’ relief…plus rotation into defensives – half way done") this SELL-off has been closely mapping the pattern of the 2015 SELL-off (FIG B). If that pattern continues to hold, then the market should generate good gains over coming weeks. Dovish comments by Fed Vice-Chair Clarida on Friday add to that expectation (i.e. of good gains).
“Fed policy is getting close to vicinity of NEUTRAL”
“Don’t expect a big pick-up in inflation next year”
“Optimistic on outlook for higher productivity growth”
Source: CNBC, 16th November 2018
FIG A: NDX100 vs. net speculative LONG/SHORT consolidated* positions
*Consolidated positions aggregate the standard and mini size futures contracts (and weight the mini contracts accordingly).
Consistent with the movement in equity market positioning, the VIX’s positioning became modestly more net LONG (i.e. hedging increased). As FIG D shows, this is again typical behaviour post a SELL-off and typically precedes a fall in the VIX over coming weeks.
FIG B: S&P500 – this SELL-off mapped against the 2015 SELL-off
Elsewhere oil remained a focus after the recent sharp SELL-off. The size of this move was likely exaggerated by the high level of net LONG positions coming into this current weakness (on top of fundamental factors, e.g. Iranian sanction waivers). As a crowded long, much of the weakness has been a ‘washing out’ of positioning. In that respect it’s interesting to note the sharp reduction in net LONG positioning in the past few weeks (which continued last week – see FIGs C & 21), with the number of net LONG contracts falling by ~27k. The total fall in net LONGs in the past 7 weeks is now ~176.7k contracts. Also of interest in the energy space, and linked to the sharp shift in oil positioning, natural gas net LONGs picked up sharply again last week (along with the price, up +14.9% on the week).
Aggregated positioning across the US yield curve continued to shift last week. Aggregate net SHORT positions fell again (FIG F), with that fall dominated by the movement in positioning in US 10 year bonds (fig 1). The peak in aggregate net SHORTs was seven weeks prior to that. For 6 of those 7 weeks positioning has fallen. In aggregate it has shrunk from approx. 2 million contracts to around 1.33 million contracts (latest data). With that move, US 10 year bonds have been bid in the past 10 days, with the yield falling moderately to close at 3.08% on Friday.
FIG C: WTI futures price (USD/bbl) vs. net speculative LONG/SHORT positioning (in USDbn, i.e. value)
FIG D: VIX vs. net speculative LONG/SHORT positions
Points of note
Currencies: Positioning in the US dollar index has been relatively stable in recent weeks (fig 5). In comparison, the aggregated value of net LONG/SHORT positions (i.e. an aggregate of all the USD currency pairs as well as the DXY) has shown some modest softening. Reduced net SHORTs in the GBP-USD, the CAD-USD & NZD-USD pairs, have been offset by a rising number of SHORT positions in the EUR-USD and CHF-USD pairs. Added to which both the BRL & RUB have witnessed increased net LONGs in recent weeks (figs 18 & 20).
FIG E: Aggregated USD value of net LONG/SHORT USD positioning vs. broad USD index
Agricultural: Net LONG positioning in oats futures has increased notably in recent weeks along with the price (although is still significantly below 2017’s peak, fig 31). In coffee, as the price has weakened recently the unwind of net speculative SHORT positioning has paused, with SHORTs increasing modestly last week (fig 35).
Commodities: After an initial shift to net LONG positioning a few months ago, net LONG interest in silver and gold has faded over recent weeks (along with the price of those precious metals). Speculators remain notably more LONG both platinum and palladium (FIGs G & 28).
FIG F: Combined US 5, 10 & 30 year USTs net speculative LONG/SHORT positions vs. 10 year note futures
FIG G: Platinum futures (USD/fine ounce) vs. net speculative LONG/SHORT positions
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