CoT This Week: Futures, How Hedge Funds Are Positioned

Following futures positions of non-commercials are as of April 30, 2019.

10-year noteCurrently net short 287.9k, down 35.9k.

The FOMC met this week.  Markets were hoping that the Fed would deliver a dovish message.  It didn’t.  As expected, the fed funds rate was left unchanged at a target range of 225 to 250 basis points.  Going into this, hopes were building that the central bank would react to falling inflation by signaling a rate cut later this year.  Both core CPI and core PCE have trended lower since last July, with the latter – the Fed’s favorite measure of consumer inflation – up a mere 1.55 percent in March.  The bank aims at two percent.

In a post-meeting press conference Wednesday, Jerome Powell, Fed chair, said this is a transitory phenomenon and that he expects inflation to move back up.  In other words, no rate cuts are in the cards, not anytime soon.  The 10-year Treasury yield (2.53 percent) rallied three basis points for the week.

It is too soon to declare if this marks a definitive shift in trader sentiment.  The 10-year made a low of 2.36 percent on March 27.  The subsequent rally was rejected at 2.61 percent mid-April.  Support-turned-resistance at 2.62 percent is a crucial level going back a decade.  Unless bond bears retake this level, squeeze risks at some point in the future remain.  Non-commercials have built up a decent amount of net shorts in 10-year note futures.

30-year bondCurrently net short 38.1k, down 2k.

Major economic releases next week are as follows.

  • Job openings (JOLTS) for March are scheduled for Tuesday.  Non-farm openings in February dropped 538,000 month-over-month to 7.1 million.  January’s total essentially tied with last November’s record high 7.6 million.
  • Thursday brings PPI for April.  Producer prices in March increased 0.6 percent m/m and 2.2 percent year-over-year; core PPI was unchanged m/m and rose two percent y/y.
  • April’s CPI is on tap Friday.  In March, consumer prices rose 0.4 percent m/m and 1.9 percent y/y.  Core CPI over the same time period increased 0.1 percent and two percent respectively.

Crude oilCurrently net long 632.1k, down 27.7k.

US crude production in the week to April 26 increased 100,000 barrels per day to 12.3 million bpd – yet another record.  Crude imports, too, rose – up 265,000 bpd to a 10-week high of 7.4 mbpd.  As did crude and gasoline stocks.  The former jumped 9.9 million barrels to 470.6 million barrels – the highest since September 2017 – while the latter rose 917,000 barrels to 226.7 million barrels.  Refinery utilization fell nine-tenths of a percentage point to 89.2 percent.  Distillate stocks, however, fell 1.3 million barrels to 125.7 million barrels.

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