Beruflich Dokumente
Kultur Dokumente
13-April-2012
Foreign Exchange
Are the bulls running for cover? Friday's COT report shows that speculative investors have reduced significant part of their EUR and AUD positions during the week between April 3rd and April 10th. With the FOMC minutes not confirming another round of QE and a very disappointing Non-Farm Payroll change, the leveraged community reduced its bullish bets on risk-correlated assets (with the AUD taking the vast majority of the sell-off). EUR positioning, after a long uptrend, was reduced significantly last week (a W/W
decline of 60k contracts, equals to $7.9bn). I have been calling for a reversal of the
trend for the last four weeks, as the trend of speculative positions decoupled from the driving factors of the underlying spot (and short term positioning, as both spot and positioning are highly correlated). Finally it seems like speculative positions catch up with rate differential (between Germany TSY yields and their US peers). Furthermore, OTC positioning (captured by the 1-month Risk Reversal) was indicating the positioning turned EUR-bearish over the last week, with IMM positioning not reacting to the move.
EUR/USD Spot
If we look at the correlation between the EU-US rate differential and IMM positioning, we can see that the correlation continues to fall, whilst the correlation between the EUR/USD 1-month Risk Reversal and positioning seems to recover. This strange dynamic may suggest that the EUR is no longer perceived as a carry currency, and therefore rate diff. plays less significant role in positioning.
3-month rolling EUR IMM Spec. Positioning/rate diff. Correlation 3-month rolling EUR IMM Spec. Positioning/Risk Reversal Correlation
GBP net speculative positions declined as well last week (moving in tandem with the decline of EUR positions). Nonetheless, given the upward trend of GBP positioning over the last couple of weeks, the spot seems to be lagging the move.
GBP/USD Spot
In the low-yielding block, JPY and CHF long positions continue to grind higher from 4-years' low.
It seems like the slow recovery of long positions in JPY and CHF underestimates the market disappointment of the recent Non-farm Payroll change. As we can see in the chart below, the "normal" dynamic between low-yielding currencies (safe haven currencies, such as the JPY and CHF) and UST yield is a negative correlation (a drop in UST yields usually accompanied by an increase of long CHF,JPY positions). The recent move of JPY (and CHF) positions was significantly sharper than the move of UST yields.
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In the Commodity Block we saw (again), somewhat, mixed picture of positioning. In the commonwealth currencies the AUD suffered a drop of long positions (continuing the negative trend of positioning), whilst the long NZD positions continue to recover.
This mixed picture of AUD and NZD positions fits well with the price action in the AUD/NZD spot. As we can see in the chart below the implied AUD/NZD IMM speculative position (adj. to contract size) moves in tendam with the AUD/NZD Spot.
AUD/NZD Spot
The scaledown of AUD positions might be related to the growing concerns of investors regarding global growth (and china's growth in particular), as we can see in other market that growth-bullish positions (in metals and UST rates) were cut further last week. It will be interesting to continue and montior the changes in AUD positions, as these may signal about the market sentiment regarding risk appetite and growth. CAD and MXN positions declined minorly last week. While CAD continues to outperform its major peers (in G10 space), the MXN positions seem to be bit puzzling. Following the aftermath of the disappointing NFP numbers and the recent risk-off in GEM (Global Emerging Markets), the change in MXN positioning was relatively negligible (compared to the move in the Spot market and derivatives market). We should keep the MXN on the radar, as any development in the Spot market should have an affect on positioning (and vise versa).
Metals
Friday's report shows that investors reduced significantly their speculative holdings in metals (both Precious Metals and Base Metals). COMEX Gold and Silver positions were reduced further.
The continuation of the downtrend in Precious Metals should raise some red flags, as the declining UST yields should have supported the PM (Precious Metals) positioning. As the long-term correlation between UST yields and PM positioning tends to be negative (a drop in yield usually accompanied by an increase of PM positions, as investors look for assets that yield higher returns), a drop in UST yields that moves in tandem with decline in PM positions may signal that investors are extremely bearish and therefore prefer to hold USD even with near-zero yields.
In the Industrial Metals we saw a major drop in speculative positions. Platinum and Palladium reversed almost the entire uptrend that started at the beginning of the year.
We continue to see Copper (Grade A) positions on a free fall, as investors seem to be turning bearish on growth (and industrial expansion). Given the high correlation between Copper IMM speculative positions and FTSE mining index, the drop in copper positions may signal a further decline of the mining companies' shares.
US Rates
So long UST bears? In the aftermath of the disappointing NFP numbers, and the growing concerns regarding global growth, it seems like UST bears are gone (for now). UST long positions recovered significantly (an increase of 151k contracts,
valuing at $20.5bn).
At the short end of the curve we continue to see a mixed picture in positioning. Positions in Fed Funds futures continue to decline, whilst net speculative positions in 3-month EuroDollar remain flat.
US Equities
Friday's report provided a very surprising picture regarding the speculative positions in US equities. It seems that even after the recent risk-off mode that that market is currently at, and the very bearish positioning in other markets (Rates, Metals and FX), the leveraged community remains very bullish on US equities.
More interesting to note is that investors reduced speculative short VIX positions, which may signal that although the leveraged community is still bullish on US equities, there is still a great deal of fear concerning the equity market and a possible sell-off.
VIX Spot
To conclude, we seem to be getting a lot of negative signals regarding global growth and (from the positions in US rates to the positions in Industrial Metals and FX market). The upcoming weeks (following the recent, disappointing, GDP data from china, and the next FOMC meeting) will definitely be a catalyst for the next big move. If we will continue to see below-consensus prints from the major economies, speculative positioning will obviously be clearer than it is now. The main themes to watch, in my view, are the positioning in growth-correlated assets (basic materials) and US Rates. These two asset classes will lead the sentiment.
Good Luck,
Harel Jacobson