Are traders betting on cyclicals again?

Positioning in cyclical trades up for first time in months

Chart of the Day

The CFTC Commitment of Traders report gives us some insight into the types of traders that professional money managers are putting on. Aggregating together some common trades that normally signify improving expectations about the economic outlook, such as long oil or short bonds, suggests speculative positioning increased last week for the first time this year. We can’t get too excited though - speculative positioning remains fairly low and still appears to be pointing to declines in the key business surveys.

Macro

The August non-farm payrolls report on Friday showed a disappointing increase of just 235,000. That was a worse result from the 1053,000 rise in the prior month, and most are blaming the spread of the coronavirus.

The ISM services price paid component also fell in August.

Markets

Despite the disappointing figure on payrolls, US bond yields increased on Friday - that was mainly due to higher real yields, which appears counterintuitive.

On the yield curve, the big move in terms of the 30y-5y spread lately, which gives us some idea into how investors’ opinion on the very long-term outlook is changing, has been in Germany. Maybe telling us that interest rates could start to rise in the bloc later this decade?

That may explain why the USD has depreciated against most currencies lately, in conjunction with the Fed’s dovish messages.

The cyclical currencies have been fairly strongly in the past month, but have stabilise the last few days.

Likewise, both risk-on and risk-off traders have behaved similarly in the past few days.

Will the gap between the copper/gold ratio and 10-year yields soon close? Many still appear to expect a big rise in bond yields in the next 12 months.

Speculative positioning on GBP has moved in the opposite direction to the pound itself.

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