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Don’t bet with ChatGPT – study shows language AIs often make irrational decisions

By Mayank Kejriwal, University of Southern California

The past few years have seen an explosion of progress in large language model artificial intelligence systems that can do things like write poetry, conduct humanlike conversations and pass medical school exams. This progress has yielded models like ChatGPT that could have major social and economic ramifications ranging from job displacements and increased misinformation to massive productivity boosts.

Despite their impressive abilities, large language models don’t actually think. They tend to make elementary mistakes and even make things up. However, because they generate fluent language, people tend to respond to them as though they do think. This has led researchers to study the models’ “cognitive” abilities and biases, work that has grown in importance now that large language models are widely accessible.

This line of research dates back to early large language models such as Google’s BERT, which is integrated into its search engine and so has been coined BERTology. This research has already revealed a lot about what such models can do and where they go wrong.

For instance, cleverly designed experiments have shown that many language models have trouble dealing with negation – for example, a question phrased as “what is not” – and doing simple calculations. They can be overly confident in their answers, even when wrong. Like other modern machine learning algorithms, they have trouble explaining themselves when asked why they answered a certain way.

People make irrational decisions, too, but humans have emotions and cognitive shortcuts as excuses.

Words and thoughts

Inspired by the growing body of research in BERTology and related fields like cognitive science, my student Zhisheng Tang and I set out to answer a seemingly simple question about large language models: Are they rational?

Although the word rational is often used as a synonym for sane or reasonable in everyday English, it has a specific meaning in the field of decision-making. A decision-making system – whether an individual human or a complex entity like an organization – is rational if, given a set of choices, it chooses to maximize expected gain.

The qualifier “expected” is important because it indicates that decisions are made under conditions of significant uncertainty. If I toss a fair coin, I know that it will come up heads half of the time on average. However, I can’t make a prediction about the outcome of any given coin toss. This is why casinos are able to afford the occasional big payout: Even narrow house odds yield enormous profits on average.

On the surface, it seems odd to assume that a model designed to make accurate predictions about words and sentences without actually understanding their meanings can understand expected gain. But there is an enormous body of research showing that language and cognition are intertwined. An excellent example is seminal research done by scientists Edward Sapir and Benjamin Lee Whorf in the early 20th century. Their work suggested that one’s native language and vocabulary can shape the way a person thinks.

The extent to which this is true is controversial, but there is supporting anthropological evidence from the study of Native American cultures. For instance, speakers of the Zuñi language spoken by the Zuñi people in the American Southwest, which does not have separate words for orange and yellow, are not able to distinguish between these colors as effectively as speakers of languages that do have separate words for the colors.

Making a bet

So are language models rational? Can they understand expected gain? We conducted a detailed set of experiments to show that, in their original form, models like BERT behave randomly when presented with betlike choices. This is the case even when we give it a trick question like: If you toss a coin and it comes up heads, you win a diamond; if it comes up tails, you lose a car. Which would you take? The correct answer is heads, but the AI models chose tails about half the time.

screenshot of text dialogue — ChatGPT is not clear on the concept of gains and losses.
ChatGPT dialogue by Mayank Kejriwal, CC BY-ND

Intriguingly, we found that the model can be taught to make relatively rational decisions using only a small set of example questions and answers. At first blush, this would seem to suggest that the models can indeed do more than just “play” with language. Further experiments, however, showed that the situation is actually much more complex. For instance, when we used cards or dice instead of coins to frame our bet questions, we found that performance dropped significantly, by over 25%, although it stayed above random selection.

So the idea that the model can be taught general principles of rational decision-making remains unresolved, at best. More recent case studies that we conducted using ChatGPT confirm that decision-making remains a nontrivial and unsolved problem even for much bigger and more advanced large language models.

Getting the decision right

This line of study is important because rational decision-making under conditions of uncertainty is critical to building systems that understand costs and benefits. By balancing expected costs and benefits, an intelligent system might have been able to do better than humans at planning around the supply chain disruptions the world experienced during the COVID-19 pandemic, managing inventory or serving as a financial adviser.

Our work ultimately shows that if large language models are used for these kinds of purposes, humans need to guide, review and edit their work. And until researchers figure out how to endow large language models with a general sense of rationality, the models should be treated with caution, especially in applications requiring high-stakes decision-making.

About the Author:

Mayank Kejriwal, Research Assistant Professor of Industrial & Systems Engineering, University of Southern California

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Opinions Programming

11 Apr

Time for Rumination

Source: Michael Ballanger (4/10/23)

Michael Ballanger of GGM Advisory Inc. takes time to ruminate on the current state of the markets, both looking at the S&P Index and the gold market.

Auguste Rodin (1840-1917) was a famous French sculptor that chiseled out “The Thinker” shown above and featured in the highly-popular television series “The Many Loves of Dobie Gillis” as a background set piece.

It is the likeness of a man immersed in “rumination” as if obsessed with a conundrum such that when I was conjuring up a theme for this weekend’s weekly missive, had a mirror been close by, I may have observed Rodin’s masterpiece in lieu of my pitiable visage.

It was John Maynard Keynes that once remarked that “When the facts change, I change my mind.” And it was only after decades of stubborn resistance to any new information challenging my original investment thesis that I learned to embrace it.

That is one of the many cognitive biases that plague investors with this one known as confirmation bias. You seek out only the research and related articles that confirm your original premise for owning something.

The reason I mention this is that the current set of conditions that surround equity markets are sending off conflicting signals.

They say that “beauty is in the eye of the beholder,” but that also applies to “ugliness.” And this market is both.

The last barrage of fundamental data was about as ugly as it comes but when it comes to the technical picture, not so much. Just as “The Thinker” sits mesmerized as he stares down at the floor, many of us are also perplexed, although I do remain a cautious, short-term bull on stocks as well as a pound-the-table bull on gold.

Positive also on the electrification metals and on nuclear energy, I also see selected lithium names with near-term proximity to production at the forefront.

However, as these are amongst the most difficult markets I can ever recall, I empathize with Rodin’s sculpture.

S&P

The chart of the S&P 500 (“SPX”) is about as inoffensive as one could expect after stocks shrugged off several bank “runs” in March and more than a few mini-panics in North America and Europe. Goldman Sachs believes that the lows reached in October of 2022 may have been “THE” lows for the correction and that all-time highs will soon arrive, bypassing the most-heavily predicted recession in world history.

Three weeks ago, Morgan Stanley’s Michael Wilson was warning people of a “20% downside” for the markets before the bear market is over but now says (in very fine print) “for some stocks” as bearish rhetoric eases and forecasts are delivered in increasingly “couched” manners.

I felt like I was doing my rendition of a toilet seat lid at a frat house “kegger” all through March, as the vagary of direction had me wanting to chase breakouts one day and then selling breakdowns the next. Up, down, bullish, bearish – these are the types of choppy markets that drive trend traders crazy. What I am forced to do is refer back to four and half decades of built-up scar tissue to attempt to glean some distant recognition of a pattern or series of patterns that rings a bell, and it was just last evening as I scanned the stock index section of my chart book did I find myself in the agony of self-doubt.

As you will recall, I said one week ago that I thought that “The Bull is Back” with the SPX finally achieving escape velocity above that narrow band where 50, 100, and 200-DMA lines were all clustered together.

Last week, however, the JOLTS and ADP reports threw cold water on the technical heat resulting in a stall of sorts, and if there is anything more doubt-instilling after dodging the jaws of the meat grinder trading range, it is the dreaded stall.

At times like these, I pour myself a cup of Chai tea and gaze out over the lovely swamp called “Lake” Scugog, now devoid of ice after all the wind and rain of yesterday’s tempest, at which point I am reminded of a lecture once administered by a mentor back in the 1980s in which he swore black-and-blue that no bull market could endure without the cooperation and participation of the banks.

Mind you, the banks of the 1980s are mere shadows of the banks of the 2020s as they refrained back then from any of those “shenanigans of speculation” so commonplace today. Nevertheless, banks are banks, and they are important from a technical perspective, acting as a confirming indicator of the health (or fragility) of any market advance.

Despite a 4.5% rebound, the S&P Bank Index is still off 14.64% year-to-date, which really throws a technical damper over the set-up for stocks, albeit nothing as of yet terminal.

I draw this to your attention because whether you are trading tech or crypto or metals or energy, those sub-sectors are all heavily correlated to the SPX, and as we witnessed in 2008, 2020, and 2022, when they take the broad markets down, everything goes with it — or as that mentor of mine used to say, “When they raid the wh*** house, they take all the ladies, even the piano player.” (Please forgive the rather crass analogy.)

Gold

In keeping with the theme of “unavoidable correlation,” while it is important to remember that gold did not go unaffected by the events of 2008 and 2020, there have been two memorable stock market corrections in my recollective wheelhouse that stand out.

The first was October 19 to October 26^th, 1987 — the Crash of ’87 — when I was 100%-invested in the senior and junior gold miners as a means of protecting my clients from a serious correction in stock prices which had advanced from Dow Jones 865 to 2,720 in five years sporting an average P/E of over 30 just before the Crash.

That year, there was an inverse correlation between the stock market and gold bullion prices, but it was a very sneaky affair, where the miners related to gold bullion decided to run for the exits along with the panicked equity bulls while physical gold bullion rallied from around US$425 to US$505. Where the lesson of 1987 was absolutely seared into my synapses was watching the TSE Gold and Silver Index ignore physical bullion’s 8% advance over the next four days and get cut in half – 10,300 to under 5,000 despite an US$80/ounce jump in spot gold.

Not only was it shocking, it was cruel.

The other time there was a departure from the correlation with equities was in the past fifteen months.

Since the date the SPX topped on January 7, 2022, gold is up 11.68% versus the 10.8% drop in the SPX, and while both 2008 and 2020 were liquidity-starved crashes, 2022 was an orderly decline which speaks even more loudly for gold’s performance.

Because rising real interest rates are the mortal enemy of the gold bug, that real rates have actually been moving in that very time frame from deeply negative (- 7.51%) to mildly negative (- 1.56%) while gold moves to within 3% of (USD) all-time high prices is amazing.

There is a really fascinating interview with geopolitical analyst Peter Zeihan, one of my favorite research sources, and in the interest of giving full credit to where it absolutely deserves to be, his assessment of the inflationary outlook here in 2023 is brilliant and one to which I fully subscribe.

You see, from 1990 until March 2020 (the arrival of the pandemic), the world enjoyed three decades of cheap Asian labor, cheap energy, and cheap capital. The forces of disinflation could not have been scripted any better than in an era in which major improvements in access to the global supply chain were made. By 2020, the trade routes of the seas were like the L.A. Expressway, with the oversupply of dollar store electronics and obsolete air conditioners sitting idle in offshore queues in major western ports.

However, with the shutdown in the global economy by dim-sighted politicians and underqualified medical hacks, the supply chain was irreversibly altered. With the playing field no longer favoring cheap Chinese labor and open-armed American markets, things are simply going to cost more.

Zeihan thinks we will run a 9% CPI for the next fifteen years providing that North America moves quickly to repatriate its once-formidable, post-WWII manufacturing juggernaut as the required resources tilt hard at commodity supplies (and therefore prices). Without this rebuild of the American Middle Class, he sees 15% CPI because, as Zeihan says with such masterful bluntness, “the supply chain is screwed, and stuff will be harder to get.”

As I am watching the carp already starting to flop around the shoreline of the Scugog Swamp in a grotesque mating ritual too bizarre for words, I ruminate on the role of gold given the global outlook described by Zeihan.

Absent any of the counterparty risks associated with virtually every other asset class, physical metals do not need any permissions in order for the owner to transact. I think that when the world suddenly wakes up to the reality of what actually happened at FTX or Silicon Valley Bank (and what was about to happen at Credit Suisse), they will opt for the unimpaired status of owning gold bullion over everything else.

Furthermore, when the generalist money managers decide to shift 1% of their AUM into gold, the impact upon such a comparatively minuscule market cap will be gargantuan in scale. As one walks down the aisle of valuation analysis, the “perfect storm” for gold miners is rising gold prices, declining energy prices, and negative real interest rates.

With the major cost input being diesel fuel for producers as well as timber and concrete for developers, profit margins are widening rapidly while, for the first time since the 1930s, liberal dividend policies are attracting a different breed of investor to an asset class current under-loved and under-owned, an ideal prerequisite for opportune accumulation.

Michael Ballanger Disclaimer:

This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.

Disclosures:

1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None.

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Economics & Fundamentals Opinions

08 Apr

Large Currency Speculators drop their Canadian dollar bets to 220-week low

By InvestMacro

Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC).

The latest COT data is updated through Tuesday April 4th and shows a quick view of how large market participants (for-profit speculators and commercial traders) were positioned in the futures markets. All currency positions are in direct relation to the US dollar where, for example, a bet for the euro is a bet that the euro will rise versus the dollar while a bet against the euro will be a bet that the euro will decline versus the dollar.

Weekly Speculator Changes led by British Pound & Mexican Peso

The COT currency market speculator bets were lower this week as five out of the eleven currency markets we cover had higher positioning while the other six markets had lower speculator contracts.

Leading the gains for the currency markets was the British Pound (9,291 contracts) with the Mexican Peso (8,634 contracts), Australian Dollar (8,120 contracts), New Zealand Dollar (2,579 contracts), US Dollar Index (1,387 contracts) and the Brazilian Real (-9,480 contracts) also showing positive weeks.

The currencies seeing declines in speculator bets on the week were the EuroFX (-1,632 contracts) with the Canadian Dollar (-1,684 contracts), the Swiss Franc (-1,929 contracts), Japanese Yen (-3,061 contracts) and Bitcoin (-339 contracts) also registering lower bets on the week.

Large Currency Speculators drop their Canadian dollar bets to 220-week low

Highlighting the COT currency’s data this week is the continued bearishness of the speculator’s positioning in the Canadian dollar.

Large speculative Canadian dollar positions fell this week for the fourth consecutive week and for the seventh time in the past nine weeks. Speculators have now added a total of -29,307 net contracts to the overall bearish position in just the last four weeks. This bearishness has pushed the CAD speculator net position (currently at -58,509 contracts) to the most bearish level of the past 220 weeks, dating back to January 15th of 2019.

Hurting the Canadian dollar’s appeal has been the recent pause in interest rate rises by the Bank of Canada (after 8 rate hikes previously) as well as the slide in the price of Crude Oil. The Canadian dollar’s exchange rate versus the US dollar has been in a downtrend since hitting a multi-year high in May of 2022 at over 0.8280. The CAD front month futures price closed this week at the 0.7431 exchange and has now risen for two straight weeks.

Data Snapshot of Forex Market Traders | Columns Legend

Apr-04-2023	OI	OI-Index	Spec-Net	Spec-Index	Com-Net	COM-Index	Smalls-Net	Smalls-Index
USD Index	32,076	28	14,106	48	-16,154	50	2,048	39
EUR	747,095	74	143,393	74	-194,787	25	51,394	61
GBP	224,690	52	-14,793	56	8,881	40	5,912	70
JPY	178,828	35	-57,036	34	52,266	61	4,770	63
CHF	37,177	26	-8,003	33	10,822	63	-2,819	48
CAD	169,138	43	-58,509	0	58,148	96	361	24
AUD	151,242	50	-27,233	60	36,837	46	-9,604	29
NZD	36,080	24	-4,031	43	2,697	53	1,334	67
MXN	250,403	55	57,913	92	-63,177	8	5,264	89
RUB	20,930	4	7,543	31	-7,150	69	-393	24
BRL	35,244	19	14,003	54	-15,562	46	1,559	56
Bitcoin	13,380	61	-615	66	-183	0	798	31

Strength Scores led by Mexican Peso & EuroFX

COT Strength Scores (a normalized measure of Speculator positions over a 3-Year range, from 0 to 100 where above 80 is Extreme-Bullish and below 20 is Extreme-Bearish) showed that the Mexican Peso (92 percent) and the EuroFX (74 percent) lead the currency markets this week. The Bitcoin (66 percent), Australian Dollar (60 percent) and the British Pound (56 percent) come in as the next highest in the weekly strength scores.

On the downside, the Canadian Dollar (0 percent) comes in at the lowest strength levels currently and is in Extreme-Bearish territory (below 20 percent).

Strength Statistics:
US Dollar Index (48.5 percent) vs US Dollar Index previous week (46.1 percent)
EuroFX (73.7 percent) vs EuroFX previous week (74.3 percent)
British Pound Sterling (56.3 percent) vs British Pound Sterling previous week (48.3 percent)
Japanese Yen (33.7 percent) vs Japanese Yen previous week (35.6 percent)
Swiss Franc (33.4 percent) vs Swiss Franc previous week (38.5 percent)
Canadian Dollar (0.0 percent) vs Canadian Dollar previous week (1.6 percent)
Australian Dollar (59.6 percent) vs Australian Dollar previous week (52.1 percent)
New Zealand Dollar (42.7 percent) vs New Zealand Dollar previous week (35.7 percent)
Mexican Peso (92.5 percent) vs Mexican Peso previous week (85.9 percent)
Brazilian Real (53.6 percent) vs Brazilian Real previous week (65.7 percent)
Bitcoin (66.2 percent) vs Bitcoin previous week (72.1 percent)

Mexican Peso & British Pound top the 6-Week Strength Trends

COT Strength Score Trends (or move index, calculates the 6-week changes in strength scores) showed that the Mexican Peso (72 percent) and the British Pound (6 percent) lead the past six weeks trends for the currencies. The US Dollar Index (3 percent) and Bitcoin (3 percent) are the next highest positive movers in the latest trends data.

The New Zealand Dollar (-35 percent) leads the downside trend scores currently with the Brazilian Real (-21 percent), Canadian Dollar (-20 percent) and the Japanese Yen (-14 percent) following next with lower trend scores.

Strength Trend Statistics:
US Dollar Index (3.2 percent) vs US Dollar Index previous week (1.2 percent)
EuroFX (-8.4 percent) vs EuroFX previous week (-7.3 percent)
British Pound Sterling (5.7 percent) vs British Pound Sterling previous week (-3.7 percent)
Japanese Yen (-14.2 percent) vs Japanese Yen previous week (-16.1 percent)
Swiss Franc (-3.9 percent) vs Swiss Franc previous week (3.7 percent)
Canadian Dollar (-19.6 percent) vs Canadian Dollar previous week (-19.9 percent)
Australian Dollar (-2.3 percent) vs Australian Dollar previous week (-6.0 percent)
New Zealand Dollar (-34.7 percent) vs New Zealand Dollar previous week (-42.3 percent)
Mexican Peso (71.8 percent) vs Mexican Peso previous week (67.4 percent)
Brazilian Real (-21.0 percent) vs Brazilian Real previous week (-10.8 percent)
Bitcoin (3.4 percent) vs Bitcoin previous week (8.8 percent)

Individual COT Forex Markets:

US Dollar Index Futures:

The US Dollar Index large speculator standing this week reached a net position of 14,106 contracts in the data reported through Tuesday. This was a weekly advance of 1,387 contracts from the previous week which had a total of 12,719 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 48.5 percent. The commercials are Bullish with a score of 50.1 percent and the small traders (not shown in chart) are Bearish with a score of 38.9 percent.

US DOLLAR INDEX Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	79.7	1.5	14.7
– Percent of Open Interest Shorts:	35.8	51.8	8.3
– Net Position:	14,106	-16,154	2,048
– Gross Longs:	25,574	473	4,703
– Gross Shorts:	11,468	16,627	2,655
– Long to Short Ratio:	2.2 to 1	0.0 to 1	1.8 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	48.5	50.1	38.9
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	3.2	0.8	-26.2

Euro Currency Futures:

The Euro Currency large speculator standing this week reached a net position of 143,393 contracts in the data reported through Tuesday. This was a weekly decline of -1,632 contracts from the previous week which had a total of 145,025 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 73.7 percent. The commercials are Bearish with a score of 24.7 percent and the small traders (not shown in chart) are Bullish with a score of 61.0 percent.

EURO Currency Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	30.2	55.6	12.3
– Percent of Open Interest Shorts:	11.0	81.6	5.4
– Net Position:	143,393	-194,787	51,394
– Gross Longs:	225,416	415,104	91,568
– Gross Shorts:	82,023	609,891	40,174
– Long to Short Ratio:	2.7 to 1	0.7 to 1	2.3 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	73.7	24.7	61.0
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-8.4	6.4	4.2

British Pound Sterling Futures:

The British Pound Sterling large speculator standing this week reached a net position of -14,793 contracts in the data reported through Tuesday. This was a weekly rise of 9,291 contracts from the previous week which had a total of -24,084 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 56.3 percent. The commercials are Bearish with a score of 40.1 percent and the small traders (not shown in chart) are Bullish with a score of 69.6 percent.

BRITISH POUND Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	20.7	59.5	13.9
– Percent of Open Interest Shorts:	27.2	55.6	11.3
– Net Position:	-14,793	8,881	5,912
– Gross Longs:	46,415	133,802	31,247
– Gross Shorts:	61,208	124,921	25,335
– Long to Short Ratio:	0.8 to 1	1.1 to 1	1.2 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	56.3	40.1	69.6
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	5.7	-19.5	43.4

Japanese Yen Futures:

The Japanese Yen large speculator standing this week reached a net position of -57,036 contracts in the data reported through Tuesday. This was a weekly reduction of -3,061 contracts from the previous week which had a total of -53,975 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 33.7 percent. The commercials are Bullish with a score of 61.2 percent and the small traders (not shown in chart) are Bullish with a score of 63.1 percent.

JAPANESE YEN Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	6.4	74.6	18.0
– Percent of Open Interest Shorts:	38.3	45.3	15.3
– Net Position:	-57,036	52,266	4,770
– Gross Longs:	11,523	133,327	32,150
– Gross Shorts:	68,559	81,061	27,380
– Long to Short Ratio:	0.2 to 1	1.6 to 1	1.2 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	33.7	61.2	63.1
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-14.2	2.6	35.8

Swiss Franc Futures:

The Swiss Franc large speculator standing this week reached a net position of -8,003 contracts in the data reported through Tuesday. This was a weekly reduction of -1,929 contracts from the previous week which had a total of -6,074 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 33.4 percent. The commercials are Bullish with a score of 62.8 percent and the small traders (not shown in chart) are Bearish with a score of 48.0 percent.

SWISS FRANC Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	8.0	53.9	32.9
– Percent of Open Interest Shorts:	29.5	24.8	40.5
– Net Position:	-8,003	10,822	-2,819
– Gross Longs:	2,958	20,038	12,249
– Gross Shorts:	10,961	9,216	15,068
– Long to Short Ratio:	0.3 to 1	2.2 to 1	0.8 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	33.4	62.8	48.0
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-3.9	-2.0	9.2

Canadian Dollar Futures:

The Canadian Dollar large speculator standing this week reached a net position of -58,509 contracts in the data reported through Tuesday. This was a weekly lowering of -1,684 contracts from the previous week which had a total of -56,825 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 0.0 percent. The commercials are Bullish-Extreme with a score of 95.7 percent and the small traders (not shown in chart) are Bearish with a score of 23.6 percent.

CANADIAN DOLLAR Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	9.8	70.2	18.4
– Percent of Open Interest Shorts:	44.4	35.9	18.2
– Net Position:	-58,509	58,148	361
– Gross Longs:	16,607	118,790	31,176
– Gross Shorts:	75,116	60,642	30,815
– Long to Short Ratio:	0.2 to 1	2.0 to 1	1.0 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	0.0	95.7	23.6
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-19.6	12.5	5.8

Australian Dollar Futures:

The Australian Dollar large speculator standing this week reached a net position of -27,233 contracts in the data reported through Tuesday. This was a weekly boost of 8,120 contracts from the previous week which had a total of -35,353 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 59.6 percent. The commercials are Bearish with a score of 46.4 percent and the small traders (not shown in chart) are Bearish with a score of 29.0 percent.

AUSTRALIAN DOLLAR Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	30.9	53.1	12.9
– Percent of Open Interest Shorts:	48.9	28.7	19.3
– Net Position:	-27,233	36,837	-9,604
– Gross Longs:	46,687	80,257	19,523
– Gross Shorts:	73,920	43,420	29,127
– Long to Short Ratio:	0.6 to 1	1.8 to 1	0.7 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	59.6	46.4	29.0
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-2.3	8.8	-22.8

New Zealand Dollar Futures:

The New Zealand Dollar large speculator standing this week reached a net position of -4,031 contracts in the data reported through Tuesday. This was a weekly rise of 2,579 contracts from the previous week which had a total of -6,610 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 42.7 percent. The commercials are Bullish with a score of 52.8 percent and the small traders (not shown in chart) are Bullish with a score of 67.0 percent.

NEW ZEALAND DOLLAR Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	39.6	47.3	12.5
– Percent of Open Interest Shorts:	50.8	39.8	8.8
– Net Position:	-4,031	2,697	1,334
– Gross Longs:	14,280	17,050	4,501
– Gross Shorts:	18,311	14,353	3,167
– Long to Short Ratio:	0.8 to 1	1.2 to 1	1.4 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	42.7	52.8	67.0
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-34.7	27.6	12.6

Mexican Peso Futures:

The Mexican Peso large speculator standing this week reached a net position of 57,913 contracts in the data reported through Tuesday. This was a weekly boost of 8,634 contracts from the previous week which had a total of 49,279 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 92.5 percent. The commercials are Bearish-Extreme with a score of 8.1 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 88.7 percent.

MEXICAN PESO Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	50.9	45.9	3.1
– Percent of Open Interest Shorts:	27.7	71.1	1.0
– Net Position:	57,913	-63,177	5,264
– Gross Longs:	127,371	114,977	7,808
– Gross Shorts:	69,458	178,154	2,544
– Long to Short Ratio:	1.8 to 1	0.6 to 1	3.1 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	92.5	8.1	88.7
– Strength Index Reading (3 Year Range):	Bullish-Extreme	Bearish-Extreme	Bullish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	71.8	-67.7	-0.9

Brazilian Real Futures:

The Brazilian Real large speculator standing this week reached a net position of 14,003 contracts in the data reported through Tuesday. This was a weekly reduction of -9,480 contracts from the previous week which had a total of 23,483 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 53.6 percent. The commercials are Bearish with a score of 45.5 percent and the small traders (not shown in chart) are Bullish with a score of 56.4 percent.

BRAZIL REAL Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	69.7	19.8	10.5
– Percent of Open Interest Shorts:	30.0	63.9	6.1
– Net Position:	14,003	-15,562	1,559
– Gross Longs:	24,576	6,964	3,704
– Gross Shorts:	10,573	22,526	2,145
– Long to Short Ratio:	2.3 to 1	0.3 to 1	1.7 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	53.6	45.5	56.4
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-21.0	20.4	-0.2

Bitcoin Futures:

The Bitcoin large speculator standing this week reached a net position of -615 contracts in the data reported through Tuesday. This was a weekly decline of -339 contracts from the previous week which had a total of -276 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 66.2 percent. The commercials are Bullish with a score of 50.9 percent and the small traders (not shown in chart) are Bearish with a score of 31.1 percent.

BITCOIN Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	77.8	2.3	10.9
– Percent of Open Interest Shorts:	82.4	3.6	4.9
– Net Position:	-615	-183	798
– Gross Longs:	10,415	302	1,458
– Gross Shorts:	11,030	485	660
– Long to Short Ratio:	0.9 to 1	0.6 to 1	2.2 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	66.2	50.9	31.1
– Strength Index Reading (3 Year Range):	Bullish	Bullish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	3.4	-27.6	9.6

Article By InvestMacro – Receive our weekly COT Newsletter

*COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets.

The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting). See CFTC criteria here.

COT Updates Forex and Currency News Opinions

08 Apr

COT Metals: Gold and Silver Speculator positions continue to move higher

By InvestMacro

Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC).

The latest COT data is updated through Tuesday April 4th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets.

Weekly Speculator Changes led by Gold & Silver

The COT metals markets speculator bets were higher this week as five out of the six metals markets we cover had higher positioning while the other one markets had lower speculator contracts.

Leading the gains for the metals was Gold (13,586 contracts) with Silver (7,922 contracts), Platinum (5,049 contracts), Palladium (118 contracts) and Steel (1,117 contracts) also showing positive weeks.

The market with declines in speculator bets for the week was Copper (-1,409 contracts).

Gold and Silver Speculator positions continue to move higher

Highlighting the COT metals data this week is the continued rise in bets for the Gold and Silver speculative positions.

The large speculator position in Gold futures rose this week for a fourth straight week and for the sixth time out of the past seven weeks. Gold speculator bets have now jumped by a total of +96,742 contracts over just the past four weeks going from a total net position of +98,474
contracts on March 7th to a total of +195,216 contracts this week.

Meanwhile, the Silver speculator positions have also risen for four straight weeks and have gained by a total of +29,065 contracts over that four-week period. These gains have taken the Silver position out of an overall bearish level of -7,782 contracts on March 7th to a total of +21,283 contracts this week (the most bullish level since January 31st).

The Gold and Silver futures prices have also been on the rise as well. The Gold futures front month price closed this week at approximately the $2,026 level which is the highest weekly close since August 3rd of 2020. Gold is now up over 25 percent since October.

Silver futures prices have gained for four straight weeks and closed this week above $25, the highest level since April of 2022. Silver prices are up by over 40 percent from the most recent cycle low in late-August of 2022.

Data Snapshot of Commodity Market Traders | Columns Legend

Apr-04-2023	OI	OI-Index	Spec-Net	Spec-Index	Com-Net	COM-Index	Smalls-Net	Smalls-Index
Gold	476,592	25	195,216	63	-218,250	40	23,034	38
Silver	131,210	16	21,283	49	-31,435	56	10,152	23
Copper	218,687	57	-2,954	26	-4,897	69	7,851	68
Palladium	11,820	82	-6,646	4	7,011	97	-365	20
Platinum	59,156	38	15,423	51	-19,201	54	3,778	19

Strength Scores led by Gold & Steel

COT Strength Scores (a normalized measure of Speculator positions over a 3-Year range, from 0 to 100 where above 80 is Extreme-Bullish and below 20 is Extreme-Bearish) showed that Gold (63 percent) and Steel (61 percent) lead the metals markets this week. Palladium (4 percent) comes in as the next highest in the weekly strength scores.

On the downside, Palladium (4 percent) comes in at the lowest strength level currently and is in Extreme-Bearish territory (below 20 percent).

Strength Statistics:
Gold (63.0 percent) vs Gold previous week (57.0 percent)
Silver (48.6 percent) vs Silver previous week (37.3 percent)
Copper (25.8 percent) vs Copper previous week (27.0 percent)
Platinum (51.2 percent) vs Platinum previous week (39.5 percent)
Palladium (4.2 percent) vs Palladium previous week (3.1 percent)
Steel (61.2 percent) vs Palladium previous week (57.9 percent)

Gold & Platinum top the 6-Week Strength Trends

COT Strength Score Trends (or move index, calculates the 6-week changes in strength scores) showed that Gold (39 percent) and Platinum (29 percent) lead the past six weeks trends for metals.

Palladium (-13 percent) leads the downside trend scores currently.

Move Statistics:
Gold (38.8 percent) vs Gold previous week (33.5 percent)
Silver (16.2 percent) vs Silver previous week (2.6 percent)
Copper (-4.5 percent) vs Copper previous week (3.5 percent)
Platinum (28.9 percent) vs Platinum previous week (10.1 percent)
Palladium (-13.5 percent) vs Palladium previous week (-16.4 percent)
Steel (0.2 percent) vs Steel previous week (-3.8 percent)

Individual Markets:

Gold Comex Futures:

The Gold Comex Futures large speculator standing this week was a net position of 195,216 contracts in the data reported through Tuesday. This was a weekly gain of 13,586 contracts from the previous week which had a total of 181,630 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 63.0 percent. The commercials are Bearish with a score of 39.7 percent and the small traders (not shown in chart) are Bearish with a score of 37.7 percent.

Gold Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	55.8	24.5	10.2
– Percent of Open Interest Shorts:	14.9	70.3	5.4
– Net Position:	195,216	-218,250	23,034
– Gross Longs:	266,164	116,869	48,740
– Gross Shorts:	70,948	335,119	25,706
– Long to Short Ratio:	3.8 to 1	0.3 to 1	1.9 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	63.0	39.7	37.7
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	38.8	-34.4	2.0

Silver Comex Futures:

The Silver Comex Futures large speculator standing this week was a net position of 21,283 contracts in the data reported through Tuesday. This was a weekly rise of 7,922 contracts from the previous week which had a total of 13,361 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 48.6 percent. The commercials are Bullish with a score of 55.8 percent and the small traders (not shown in chart) are Bearish with a score of 22.7 percent.

Silver Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	38.4	34.2	18.5
– Percent of Open Interest Shorts:	22.1	58.2	10.7
– Net Position:	21,283	-31,435	10,152
– Gross Longs:	50,327	44,936	24,209
– Gross Shorts:	29,044	76,371	14,057
– Long to Short Ratio:	1.7 to 1	0.6 to 1	1.7 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	48.6	55.8	22.7
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	16.2	-10.2	-16.8

Copper Grade #1 Futures:

The Copper Grade #1 Futures large speculator standing this week was a net position of -2,954 contracts in the data reported through Tuesday. This was a weekly reduction of -1,409 contracts from the previous week which had a total of -1,545 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 25.8 percent. The commercials are Bullish with a score of 69.3 percent and the small traders (not shown in chart) are Bullish with a score of 68.0 percent.

Copper Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	27.7	42.7	8.9
– Percent of Open Interest Shorts:	29.0	45.0	5.3
– Net Position:	-2,954	-4,897	7,851
– Gross Longs:	60,538	93,465	19,483
– Gross Shorts:	63,492	98,362	11,632
– Long to Short Ratio:	1.0 to 1	1.0 to 1	1.7 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	25.8	69.3	68.0
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-4.5	3.1	8.8

Platinum Futures:

The Platinum Futures large speculator standing this week was a net position of 15,423 contracts in the data reported through Tuesday. This was a weekly lift of 5,049 contracts from the previous week which had a total of 10,374 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 51.2 percent. The commercials are Bullish with a score of 53.8 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.8 percent.

Platinum Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	50.4	35.0	11.6
– Percent of Open Interest Shorts:	24.4	67.5	5.2
– Net Position:	15,423	-19,201	3,778
– Gross Longs:	29,841	20,708	6,873
– Gross Shorts:	14,418	39,909	3,095
– Long to Short Ratio:	2.1 to 1	0.5 to 1	2.2 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	51.2	53.8	18.8
– Strength Index Reading (3 Year Range):	Bullish	Bullish	Bearish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	28.9	-22.3	-22.8

Palladium Futures:

The Palladium Futures large speculator standing this week was a net position of -6,646 contracts in the data reported through Tuesday. This was a weekly gain of 118 contracts from the previous week which had a total of -6,764 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 4.2 percent. The commercials are Bullish-Extreme with a score of 96.6 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 19.8 percent.

Palladium Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	13.1	71.5	10.8
– Percent of Open Interest Shorts:	69.3	12.2	13.9
– Net Position:	-6,646	7,011	-365
– Gross Longs:	1,551	8,450	1,279
– Gross Shorts:	8,197	1,439	1,644
– Long to Short Ratio:	0.2 to 1	5.9 to 1	0.8 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	4.2	96.6	19.8
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bearish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-13.5	12.3	-0.1

Steel Futures Futures:

The Steel Futures large speculator standing this week was a net position of -4,138 contracts in the data reported through Tuesday. This was a weekly gain of 1,117 contracts from the previous week which had a total of -5,255 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 61.2 percent. The commercials are Bearish with a score of 38.5 percent and the small traders (not shown in chart) are Bearish with a score of 42.8 percent.

Steel Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	12.5	75.3	1.2
– Percent of Open Interest Shorts:	27.2	61.3	0.5
– Net Position:	-4,138	3,958	180
– Gross Longs:	3,532	21,243	334
– Gross Shorts:	7,670	17,285	154
– Long to Short Ratio:	0.5 to 1	1.2 to 1	2.2 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	61.2	38.5	42.8
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	0.2	0.2	-18.1

Article By InvestMacro – Receive our weekly COT Newsletter

COT Updates Metals Opinions

08 Apr

Bond Speculators boost their 5-Year Bond bearish bets to highest level since 2018

By InvestMacro

Here are the latest charts and statistics for the Commitment of Traders (COT) reports data published by the Commodities Futures Trading Commission (CFTC).

The latest COT data is updated through Tuesday April 4th and shows a quick view of how large traders (for-profit speculators and commercial hedgers) were positioned in the futures markets.

Weekly Speculator Changes led by 2-Year Bonds & Fed Funds

The COT bond market speculator bets were lower this week as three out of the nine bond markets we cover had higher positioning while the other six markets had lower speculator contracts.

Leading the gains for the bond markets was the 2-Year Bonds (23,422 contracts) with the Fed Funds (21,360 contracts) and the Ultra Treasury Bonds (14,018 contracts) also showing positive weeks.

The bond markets with declines in speculator bets for the week were the SOFR 3-Months (-154,078 contracts), the 10-Year Bonds (-149,453 contracts), the 5-Year Bonds (-98,884 contracts), the US Treasury Bonds (-38,247 contracts), the Eurodollar (-17,911 contracts) and the Ultra 10-Year Bonds (-34,673 contracts) also registering lower bets on the week.

Speculators boost their 5-Year Bond bearish bets to highest level since 2018

Highlighting the COT bond’s data this week is the renewed bearishness of the speculator positioning in the 5-Year Bonds contracts.

Large speculative positions for the 5-Year Bonds dropped sharply this week by the largest one-week amount of the past 17 weeks. Speculator bets have fallen for three straight weeks and in six out of the past seven weeks.

Prior to the past seven weeks, speculator bets had been improving and saw lessening bearish bets in seven out of the previous nine weeks that had brought the overall bearish level to a total of -589,391 contracts on February 14th. Since then a total of -191,848 contracts have been added back to the overall net bearish position – bringing this week’s total of -781,239 contracts to the most bearish standing since October 16th of 2018, a span dating back 233 weeks. The 5-Year Bond speculator positions have been in a continuous bearish position for the 84 consecutive weeks (since August 31st of 2021).

Despite the speculators bearishness this week, the 5-Year Bond futures price closed the week higher. The front month futures finished the week over the 110.20 level which marks the highest closing price since September and the 5-Year Bond futures have now risen for five out of the past six weeks.

Data Snapshot of Bond Market Traders | Columns Legend

Apr-04-2023	OI	OI-Index	Spec-Net	Spec-Index	Com-Net	COM-Index	Smalls-Net	Smalls-Index
Eurodollar	4,684,564	0	-647,319	57	820,938	41	-173,619	66
FedFunds	1,577,225	53	-147,240	21	156,927	79	-9,687	72
2-Year	2,351,682	52	-502,055	25	483,170	75	18,885	65
Long T-Bond	1,193,583	56	-129,646	42	82,281	40	47,365	84
10-Year	4,263,195	83	-621,031	1	618,359	88	2,672	84
5-Year	4,493,575	100	-781,239	0	754,970	98	26,269	88

Strength Scores led by SOFR 3-Months & Eurodollar

COT Strength Scores (a normalized measure of Speculator positions over a 3-Year range, from 0 to 100 where above 80 is Extreme-Bullish and below 20 is Extreme-Bearish) showed that the SOFR 3-Months (78 percent) and the Eurodollar (57 percent) lead the bond markets this week. The US Treasury Bonds (42 percent) comes in as the next highest in the weekly strength scores.

On the downside, the 5-Year Bonds (0 percent), the 10-Year Bonds (1 percent), the Ultra 10-Year Bonds (3 percent) and the Ultra Treasury Bonds (15 percent) came in at the lowest strength level currently and are in Extreme-Bearish territory (below 20 percent).

Strength Statistics:
Fed Funds (21.4 percent) vs Fed Funds previous week (18.8 percent)
2-Year Bond (24.8 percent) vs 2-Year Bond previous week (21.8 percent)
5-Year Bond (0.0 percent) vs 5-Year Bond previous week (11.3 percent)
10-Year Bond (0.9 percent) vs 10-Year Bond previous week (19.3 percent)
Ultra 10-Year Bond (3.4 percent) vs Ultra 10-Year Bond previous week (10.6 percent)
US Treasury Bond (42.4 percent) vs US Treasury Bond previous week (54.8 percent)
Ultra US Treasury Bond (15.4 percent) vs Ultra US Treasury Bond previous week (9.4 percent)
Eurodollar (57.4 percent) vs Eurodollar previous week (57.9 percent)
SOFR 3-Months (78.2 percent) vs SOFR 3-Months previous week (90.7 percent)

SOFR 3-Months & 2-Year Bonds top the 6-Week Strength Trends

COT Strength Score Trends (or move index, calculates the 6-week changes in strength scores) showed that the SOFR 3-Months (44 percent) and the 2-Year Bonds (24 percent) lead the past six weeks trends for bonds.

The 10-Year Bonds (-15 percent) leads the downside trend scores currently with the Ultra 10-Year Bonds (-10 percent) and the Fed Funds (-7 percent) following next with lower trend scores.

Strength Trend Statistics:
Fed Funds (-7.1 percent) vs Fed Funds previous week (-6.9 percent)
2-Year Bond (24.4 percent) vs 2-Year Bond previous week (21.8 percent)
5-Year Bond (-20.8 percent) vs 5-Year Bond previous week (-10.6 percent)
10-Year Bond (-14.9 percent) vs 10-Year Bond previous week (11.3 percent)
Ultra 10-Year Bond (-9.8 percent) vs Ultra 10-Year Bond previous week (-6.4 percent)
US Treasury Bond (8.2 percent) vs US Treasury Bond previous week (30.5 percent)
Ultra US Treasury Bond (-1.9 percent) vs Ultra US Treasury Bond previous week (-1.9 percent)
Eurodollar (9.3 percent) vs Eurodollar previous week (10.3 percent)
SOFR 3-Months (43.9 percent) vs SOFR 3-Months previous week (40.2 percent)

Individual Bond Markets:

3-Month Eurodollars Futures:

The 3-Month Eurodollars large speculator standing this week resulted in a net position of -647,319 contracts in the data reported through Tuesday. This was a weekly decrease of -17,911 contracts from the previous week which had a total of -629,408 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 57.4 percent. The commercials are Bearish with a score of 41.2 percent and the small traders (not shown in chart) are Bullish with a score of 66.3 percent.

3-Month Eurodollars Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	5.9	67.6	5.1
– Percent of Open Interest Shorts:	19.7	50.1	8.8
– Net Position:	-647,319	820,938	-173,619
– Gross Longs:	275,724	3,168,706	237,406
– Gross Shorts:	923,043	2,347,768	411,025
– Long to Short Ratio:	0.3 to 1	1.3 to 1	0.6 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	57.4	41.2	66.3
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	9.3	-10.4	17.3

Secured Overnight Financing Rate (3-Month) Futures:

The Secured Overnight Financing Rate (3-Month) large speculator standing this week resulted in a net position of -201,277 contracts in the data reported through Tuesday. This was a weekly decline of -154,078 contracts from the previous week which had a total of -47,199 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 78.2 percent. The commercials are Bearish with a score of 22.1 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 85.2 percent.

SOFR 3-Months Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	20.1	57.9	0.9
– Percent of Open Interest Shorts:	22.2	55.7	0.9
– Net Position:	-201,277	206,206	-4,929
– Gross Longs:	1,887,973	5,451,417	80,647
– Gross Shorts:	2,089,250	5,245,211	85,576
– Long to Short Ratio:	0.9 to 1	1.0 to 1	0.9 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	78.2	22.1	85.2
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bullish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	43.9	-43.1	-5.6

30-Day Federal Funds Futures:

The 30-Day Federal Funds large speculator standing this week resulted in a net position of -147,240 contracts in the data reported through Tuesday. This was a weekly lift of 21,360 contracts from the previous week which had a total of -168,600 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 21.4 percent. The commercials are Bullish with a score of 78.9 percent and the small traders (not shown in chart) are Bullish with a score of 72.0 percent.

30-Day Federal Funds Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	2.2	81.5	2.5
– Percent of Open Interest Shorts:	11.6	71.6	3.1
– Net Position:	-147,240	156,927	-9,687
– Gross Longs:	35,204	1,285,513	38,653
– Gross Shorts:	182,444	1,128,586	48,340
– Long to Short Ratio:	0.2 to 1	1.1 to 1	0.8 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	21.4	78.9	72.0
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-7.1	6.3	10.3

2-Year Treasury Note Futures:

The 2-Year Treasury Note large speculator standing this week resulted in a net position of -502,055 contracts in the data reported through Tuesday. This was a weekly boost of 23,422 contracts from the previous week which had a total of -525,477 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 24.8 percent. The commercials are Bullish with a score of 75.3 percent and the small traders (not shown in chart) are Bullish with a score of 64.9 percent.

2-Year Treasury Note Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	5.6	84.8	8.3
– Percent of Open Interest Shorts:	26.9	64.3	7.5
– Net Position:	-502,055	483,170	18,885
– Gross Longs:	131,369	1,994,892	194,214
– Gross Shorts:	633,424	1,511,722	175,329
– Long to Short Ratio:	0.2 to 1	1.3 to 1	1.1 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	24.8	75.3	64.9
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	24.4	-24.7	-8.4

5-Year Treasury Note Futures:

The 5-Year Treasury Note large speculator standing this week resulted in a net position of -781,239 contracts in the data reported through Tuesday. This was a weekly decrease of -98,884 contracts from the previous week which had a total of -682,355 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 0.0 percent. The commercials are Bullish-Extreme with a score of 97.8 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 88.2 percent.

5-Year Treasury Note Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	6.2	84.4	8.2
– Percent of Open Interest Shorts:	23.5	67.6	7.6
– Net Position:	-781,239	754,970	26,269
– Gross Longs:	276,432	3,791,191	366,353
– Gross Shorts:	1,057,671	3,036,221	340,084
– Long to Short Ratio:	0.3 to 1	1.2 to 1	1.1 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	0.0	97.8	88.2
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bullish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-20.8	14.5	16.0

10-Year Treasury Note Futures:

The 10-Year Treasury Note large speculator standing this week resulted in a net position of -621,031 contracts in the data reported through Tuesday. This was a weekly decline of -149,453 contracts from the previous week which had a total of -471,578 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 0.9 percent. The commercials are Bullish-Extreme with a score of 87.9 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 84.0 percent.

10-Year Treasury Note Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	8.6	80.7	8.8
– Percent of Open Interest Shorts:	23.2	66.2	8.7
– Net Position:	-621,031	618,359	2,672
– Gross Longs:	366,793	3,440,398	374,033
– Gross Shorts:	987,824	2,822,039	371,361
– Long to Short Ratio:	0.4 to 1	1.2 to 1	1.0 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	0.9	87.9	84.0
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bullish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-14.9	3.1	22.8

Ultra 10-Year Notes Futures:

The Ultra 10-Year Notes large speculator standing this week resulted in a net position of -186,477 contracts in the data reported through Tuesday. This was a weekly decline of -34,673 contracts from the previous week which had a total of -151,804 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 3.4 percent. The commercials are Bullish-Extreme with a score of 94.0 percent and the small traders (not shown in chart) are Bullish with a score of 58.9 percent.

Ultra 10-Year Notes Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	7.8	80.3	10.8
– Percent of Open Interest Shorts:	19.6	62.6	16.7
– Net Position:	-186,477	279,297	-92,820
– Gross Longs:	122,771	1,268,053	171,348
– Gross Shorts:	309,248	988,756	264,168
– Long to Short Ratio:	0.4 to 1	1.3 to 1	0.6 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	3.4	94.0	58.9
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-9.8	13.4	-9.3

US Treasury Bonds Futures:

The US Treasury Bonds large speculator standing this week resulted in a net position of -129,646 contracts in the data reported through Tuesday. This was a weekly reduction of -38,247 contracts from the previous week which had a total of -91,399 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 42.4 percent. The commercials are Bearish with a score of 39.9 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 83.6 percent.

US Treasury Bonds Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	6.6	79.1	13.9
– Percent of Open Interest Shorts:	17.4	72.3	9.9
– Net Position:	-129,646	82,281	47,365
– Gross Longs:	78,208	944,657	165,747
– Gross Shorts:	207,854	862,376	118,382
– Long to Short Ratio:	0.4 to 1	1.1 to 1	1.4 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	42.4	39.9	83.6
– Strength Index Reading (3 Year Range):	Bearish	Bearish	Bullish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	8.2	-15.3	13.1

Ultra US Treasury Bonds Futures:

The Ultra US Treasury Bonds large speculator standing this week resulted in a net position of -407,758 contracts in the data reported through Tuesday. This was a weekly increase of 14,018 contracts from the previous week which had a total of -421,776 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 15.4 percent. The commercials are Bullish with a score of 79.4 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 94.2 percent.

Ultra US Treasury Bonds Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	5.1	83.1	11.7
– Percent of Open Interest Shorts:	34.0	58.1	7.8
– Net Position:	-407,758	353,313	54,445
– Gross Longs:	71,916	1,171,667	164,167
– Gross Shorts:	479,674	818,354	109,722
– Long to Short Ratio:	0.1 to 1	1.4 to 1	1.5 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	15.4	79.4	94.2
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish	Bullish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-1.9	-5.1	15.1

Article By InvestMacro – Receive our weekly COT Newsletter

Bonds COT Updates Opinions

08 Apr

Sugar Speculator bets rise higher as Futures prices hit highest level since 2016

By InvestMacro

Here are the latest charts and statistics for the Commitment of Traders (COT) reports data published by the Commodities Futures Trading Commission (CFTC).

The latest COT data is updated through Tuesday April 4th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets.

Weekly Speculator Changes led by Sugar & Soybeans

The COT soft commodities markets speculator bets were a little higher this week as six out of the eleven softs markets we cover had higher positioning while the other five markets had lower speculator contracts.

Leading the gains for the softs markets was Sugar (23,822 contracts) with Soybeans (23,325 contracts), Live Cattle (21,476 contracts), Corn (14,162 contracts), Lean Hogs (2,214 contracts) and Cotton (3,378 contracts) also showing positive weeks.

The markets with the declines in speculator bets this week were Coffee (-4,103 contracts) with Soybean Meal (-1,439 contracts), Cocoa (-1,028 contracts), Soybean Oil (-1,717 contracts) and Wheat (-254 contracts) also registering lower bets on the week.

Sugar Speculator bets rise higher as Futures prices hit highest level since 2016

Highlighting the COT soft commodities data this week is the gains in the Sugar speculator’s bullish positioning. The large speculator bets for Sugar rose this week by over +23,000 contracts and have gained for two straight weeks as well as for three out of the past five weeks. The bullish sentiment has pushed the Sugar net speculator positions to their highest level in nine weeks and are currently also at the second highest level since November of 2021 with a current net position of +246,651 contracts.

Sugar’s speculator strength score level has been on the rise with a current score of 79 percent (out of a 3-year range on a 0-100 percent scale) while its 6-week strength score trend has increased by 5 percent.

The Sugar futures price has been in a strong bullish trend, climbing for a third consecutive week and closing out the week higher by over 8 percent. This week’s front month futures price reached above $23.00 which is the highest prices have touched since 2016. Overall, Sugar prices are up by approximately 25 percent since the start of the year.

Data Snapshot of Commodity Market Traders | Columns Legend

Apr-04-2023	OI	OI-Index	Spec-Net	Spec-Index	Com-Net	COM-Index	Smalls-Net	Smalls-Index
WTI Crude	1,858,446	41	226,127	17	-239,970	86	13,843	22
Gold	476,592	25	195,216	63	-218,250	40	23,034	38
Silver	131,210	16	21,283	49	-31,435	56	10,152	23
Copper	218,687	57	-2,954	26	-4,897	69	7,851	68
Palladium	11,820	82	-6,646	4	7,011	97	-365	20
Platinum	59,156	38	15,423	51	-19,201	54	3,778	19
Natural Gas	1,365,656	81	-130,485	20	100,737	80	29,748	51
Brent	146,925	11	-38,540	30	33,701	67	4,839	75
Heating Oil	270,347	24	4,856	35	-22,607	65	17,751	60
Soybeans	746,111	37	184,345	62	-163,267	40	-21,078	37
Corn	1,334,671	19	85,690	41	-53,314	64	-32,376	40
Coffee	201,425	13	12,648	40	-13,119	63	471	18
Sugar	1,005,892	72	246,651	79	-304,019	16	57,368	79
Wheat	375,999	52	-60,799	10	54,864	85	5,935	100

Strength Scores led by Cocoa & Sugar

COT Strength Scores (a normalized measure of Speculator positions over a 3-Year range, from 0 to 100 where above 80 is Extreme-Bullish and below 20 is Extreme-Bearish) showed that Cocoa (99 percent) and Sugar (79 percent) lead the softs markets this week. Live Cattle (75 percent), Soybean Meal (67 percent) and Soybeans (62 percent) come in as the next highest in the weekly strength scores.

On the downside, Soybean Oil (0 percent), Lean Hogs (2 percent), Cotton (4 percent) and Wheat (10 percent) come in at the lowest strength levels currently and are in Extreme-Bearish territory (below 20 percent).

Strength Statistics:
Corn (41.0 percent) vs Corn previous week (39.2 percent)
Sugar (78.7 percent) vs Sugar previous week (70.5 percent)
Coffee (40.4 percent) vs Coffee previous week (44.6 percent)
Soybeans (61.6 percent) vs Soybeans previous week (52.4 percent)
Soybean Oil (0.0 percent) vs Soybean Oil previous week (1.1 percent)
Soybean Meal (66.7 percent) vs Soybean Meal previous week (67.4 percent)
Live Cattle (74.7 percent) vs Live Cattle previous week (50.6 percent)
Lean Hogs (2.1 percent) vs Lean Hogs previous week (0.0 percent)
Cotton (3.6 percent) vs Cotton previous week (1.1 percent)
Cocoa (98.7 percent) vs Cocoa previous week (100.0 percent)
Wheat (10.4 percent) vs Wheat previous week (10.6 percent)

Cocoa & Sugar top the 6-Week Strength Trends

COT Strength Score Trends (or move index, calculates the 6-week changes in strength scores) showed that Cocoa (18 percent) and Sugar (5 percent) lead the past six weeks trends for soft commodities. Coffee (0.3 percent) is the next highest positive mover in the latest trends data.

Soybean Meal (-33 percent) leads the downside trend scores currently with Soybean Oil (-30 percent), Corn (-25 percent) and Lean Hogs (-20 percent) following next with lower trend scores.

Strength Trend Statistics:
Corn (-25.2 percent) vs Corn previous week (-29.8 percent)
Sugar (4.6 percent) vs Sugar previous week (-5.5 percent)
Coffee (0.3 percent) vs Coffee previous week (12.0 percent)
Soybeans (-3.5 percent) vs Soybeans previous week (-12.1 percent)
Soybean Oil (-30.3 percent) vs Soybean Oil previous week (-24.4 percent)
Soybean Meal (-32.8 percent) vs Soybean Meal previous week (-30.1 percent)
Live Cattle (-20.3 percent) vs Live Cattle previous week (-40.5 percent)
Lean Hogs (-20.0 percent) vs Lean Hogs previous week (-15.0 percent)
Cotton (-2.8 percent) vs Cotton previous week (-16.0 percent)
Cocoa (18.1 percent) vs Cocoa previous week (41.4 percent)
Wheat (-11.1 percent) vs Wheat previous week (-22.0 percent)

Individual Soft Commodities Markets:

CORN Futures:

The CORN large speculator standing this week resulted in a net position of 85,690 contracts in the data reported through Tuesday. This was a weekly increase of 14,162 contracts from the previous week which had a total of 71,528 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 41.0 percent. The commercials are Bullish with a score of 64.3 percent and the small traders (not shown in chart) are Bearish with a score of 40.0 percent.

CORN Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	23.2	48.3	10.0
– Percent of Open Interest Shorts:	16.8	52.3	12.5
– Net Position:	85,690	-53,314	-32,376
– Gross Longs:	310,288	644,140	134,134
– Gross Shorts:	224,598	697,454	166,510
– Long to Short Ratio:	1.4 to 1	0.9 to 1	0.8 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	41.0	64.3	40.0
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-25.2	22.2	33.7

SUGAR Futures:

The SUGAR large speculator standing this week resulted in a net position of 246,651 contracts in the data reported through Tuesday. This was a weekly boost of 23,822 contracts from the previous week which had a total of 222,829 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 78.7 percent. The commercials are Bearish-Extreme with a score of 15.9 percent and the small traders (not shown in chart) are Bullish with a score of 78.8 percent.

SUGAR Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	32.6	38.6	10.7
– Percent of Open Interest Shorts:	8.1	68.9	5.0
– Net Position:	246,651	-304,019	57,368
– Gross Longs:	328,123	388,632	107,776
– Gross Shorts:	81,472	692,651	50,408
– Long to Short Ratio:	4.0 to 1	0.6 to 1	2.1 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	78.7	15.9	78.8
– Strength Index Reading (3 Year Range):	Bullish	Bearish-Extreme	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	4.6	-7.5	16.0

COFFEE Futures:

The COFFEE large speculator standing this week resulted in a net position of 12,648 contracts in the data reported through Tuesday. This was a weekly lowering of -4,103 contracts from the previous week which had a total of 16,751 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 40.4 percent. The commercials are Bullish with a score of 62.8 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.3 percent.

COFFEE Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	18.9	49.2	4.5
– Percent of Open Interest Shorts:	12.6	55.7	4.2
– Net Position:	12,648	-13,119	471
– Gross Longs:	37,985	99,174	9,019
– Gross Shorts:	25,337	112,293	8,548
– Long to Short Ratio:	1.5 to 1	0.9 to 1	1.1 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	40.4	62.8	18.3
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bearish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	0.3	1.1	-17.1

SOYBEANS Futures:

The SOYBEANS large speculator standing this week resulted in a net position of 184,345 contracts in the data reported through Tuesday. This was a weekly increase of 23,325 contracts from the previous week which had a total of 161,020 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 61.6 percent. The commercials are Bearish with a score of 40.3 percent and the small traders (not shown in chart) are Bearish with a score of 36.7 percent.

SOYBEANS Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	28.8	43.1	7.6
– Percent of Open Interest Shorts:	4.1	65.0	10.5
– Net Position:	184,345	-163,267	-21,078
– Gross Longs:	214,749	321,612	57,051
– Gross Shorts:	30,404	484,879	78,129
– Long to Short Ratio:	7.1 to 1	0.7 to 1	0.7 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	61.6	40.3	36.7
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-3.5	-4.5	36.7

SOYBEAN OIL Futures:

The SOYBEAN OIL large speculator standing this week resulted in a net position of -9,325 contracts in the data reported through Tuesday. This was a weekly reduction of -1,717 contracts from the previous week which had a total of -7,608 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 0.0 percent. The commercials are Bullish-Extreme with a score of 100.0 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 0.0 percent.

SOYBEAN OIL Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	14.0	58.8	6.1
– Percent of Open Interest Shorts:	15.9	56.5	6.5
– Net Position:	-9,325	11,432	-2,107
– Gross Longs:	67,755	284,781	29,453
– Gross Shorts:	77,080	273,349	31,560
– Long to Short Ratio:	0.9 to 1	1.0 to 1	0.9 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	0.0	100.0	0.0
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bearish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-30.3	34.1	-50.2

SOYBEAN MEAL Futures:

The SOYBEAN MEAL large speculator standing this week resulted in a net position of 113,102 contracts in the data reported through Tuesday. This was a weekly decline of -1,439 contracts from the previous week which had a total of 114,541 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 66.7 percent. The commercials are Bearish with a score of 34.3 percent and the small traders (not shown in chart) are Bearish with a score of 27.1 percent.

SOYBEAN MEAL Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	31.1	38.4	10.9
– Percent of Open Interest Shorts:	5.2	68.3	6.8
– Net Position:	113,102	-130,796	17,694
– Gross Longs:	135,891	167,549	47,471
– Gross Shorts:	22,789	298,345	29,777
– Long to Short Ratio:	6.0 to 1	0.6 to 1	1.6 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	66.7	34.3	27.1
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-32.8	32.0	9.7

LIVE CATTLE Futures:

The LIVE CATTLE large speculator standing this week resulted in a net position of 86,174 contracts in the data reported through Tuesday. This was a weekly gain of 21,476 contracts from the previous week which had a total of 64,698 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 74.7 percent. The commercials are Bearish with a score of 26.4 percent and the small traders (not shown in chart) are Bearish with a score of 44.9 percent.

LIVE CATTLE Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	42.5	27.1	10.5
– Percent of Open Interest Shorts:	16.3	50.8	12.9
– Net Position:	86,174	-78,189	-7,985
– Gross Longs:	139,994	89,218	34,675
– Gross Shorts:	53,820	167,407	42,660
– Long to Short Ratio:	2.6 to 1	0.5 to 1	0.8 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	74.7	26.4	44.9
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-20.3	20.6	6.1

LEAN HOGS Futures:

The LEAN HOGS large speculator standing this week resulted in a net position of -19,789 contracts in the data reported through Tuesday. This was a weekly gain of 2,214 contracts from the previous week which had a total of -22,003 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 2.1 percent. The commercials are Bullish-Extreme with a score of 97.5 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 99.0 percent.

LEAN HOGS Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	30.0	36.1	11.7
– Percent of Open Interest Shorts:	38.9	27.4	11.6
– Net Position:	-19,789	19,479	310
– Gross Longs:	67,173	80,675	26,223
– Gross Shorts:	86,962	61,196	25,913
– Long to Short Ratio:	0.8 to 1	1.3 to 1	1.0 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	2.1	97.5	99.0
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bullish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-20.0	16.5	25.0

COTTON Futures:

The COTTON large speculator standing this week resulted in a net position of -6,743 contracts in the data reported through Tuesday. This was a weekly increase of 3,378 contracts from the previous week which had a total of -10,121 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 3.6 percent. The commercials are Bullish-Extreme with a score of 95.8 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 8.2 percent.

COTTON Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	25.6	49.1	5.9
– Percent of Open Interest Shorts:	29.0	45.0	6.6
– Net Position:	-6,743	8,030	-1,287
– Gross Longs:	49,554	95,210	11,458
– Gross Shorts:	56,297	87,180	12,745
– Long to Short Ratio:	0.9 to 1	1.1 to 1	0.9 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	3.6	95.8	8.2
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bearish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-2.8	3.7	-10.4

COCOA Futures:

The COCOA large speculator standing this week resulted in a net position of 60,245 contracts in the data reported through Tuesday. This was a weekly fall of -1,028 contracts from the previous week which had a total of 61,273 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 98.7 percent. The commercials are Bearish-Extreme with a score of 1.5 percent and the small traders (not shown in chart) are Bearish with a score of 36.4 percent.

COCOA Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	31.5	36.4	4.0
– Percent of Open Interest Shorts:	16.6	52.3	3.0
– Net Position:	60,245	-64,227	3,982
– Gross Longs:	127,043	146,541	16,086
– Gross Shorts:	66,798	210,768	12,104
– Long to Short Ratio:	1.9 to 1	0.7 to 1	1.3 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	98.7	1.5	36.4
– Strength Index Reading (3 Year Range):	Bullish-Extreme	Bearish-Extreme	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	18.1	-16.2	-15.3

WHEAT Futures:

The WHEAT large speculator standing this week resulted in a net position of -60,799 contracts in the data reported through Tuesday. This was a weekly reduction of -254 contracts from the previous week which had a total of -60,545 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 10.4 percent. The commercials are Bullish-Extreme with a score of 84.9 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 100.0 percent.

WHEAT Futures Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	26.4	34.3	11.3
– Percent of Open Interest Shorts:	42.6	19.7	9.8
– Net Position:	-60,799	54,864	5,935
– Gross Longs:	99,290	129,015	42,631
– Gross Shorts:	160,089	74,151	36,696
– Long to Short Ratio:	0.6 to 1	1.7 to 1	1.2 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	10.4	84.9	100.0
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bullish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-11.1	6.8	22.1

Article By InvestMacro – Receive our weekly COT Newsletter

COT Updates Opinions Soft Commodities

07 Apr

Companies that frack for oil and gas can keep a lot of information secret – but what they disclose shows widespread use of hazardous chemicals

By Vivian R. Underhill, Northeastern University and Lourdes Vera, University at Buffalo

From rural Pennsylvania to Los Angeles, more than 17 million Americans live within a mile of at least one oil or gas well. Since 2014, most new oil and gas wells have been fracked.

Fracking, short for hydraulic fracturing, is a process in which workers inject fluids underground under high pressure. The fluids fracture coal beds and shale rock, allowing the gas and oil trapped within the rock to rise to the surface. Advances in fracking launched a huge expansion of U.S. oil and gas production starting in the early 2000s but also triggered intense debate over its health and environmental impacts.

Fracking fluids are up to 97% water, but they also contain a host of chemicals that perform functions such as dissolving minerals and killing bacteria. The U.S. Environmental Protection Agency classifies a number of these chemicals as toxic or potentially toxic.

The Safe Drinking Water Act, enacted in 1974, regulates underground injection of chemicals that can threaten drinking water supplies. However, Congress has exempted fracking from most federal regulation under the law. As a result, fracking is regulated at the state level, and requirements vary from state to state.

We study the oil and gas industry in California and Texas and are members of the Wylie Environmental Data Justice Lab, which studies fracking chemicals in aggregate. In a recent study, we worked with colleagues to provide the first systematic analysis of chemicals found in fracking fluids that would be regulated under the Safe Drinking Water Act if they were injected underground for other purposes. Our findings show that excluding fracking from federal regulation under the Safe Drinking Water Act is exposing the public to an array of chemicals that are widely recognized as threats to public health.

Averting federal regulation

Fracking technologies were originally developed in the 1940s but only entered widespread use for fossil fuel extraction in the U.S. in the early 2000s. Since the process involves injecting chemicals underground and then disposing of contaminated water that flows back to the surface, it faced potential regulation under multiple U.S. environmental laws.

In 1997, the 11th Circuit Court of Appeals ruled that fracking should be regulated under the Safe Drinking Water Act. This would have required oil and gas producers to develop underground injection control plans, disclose the contents of their fracking fluids and monitor local water sources for contamination.

In response, the oil and gas industry lobbied Congress to exempt fracking from regulation under the Safe Drinking Water Act. Congress did so as part of the Energy Policy Act of 2005.

This provision is widely known as the Halliburton Loophole because it was championed by former U.S. Vice President Dick Cheney, who previously served as CEO of oil services company Halliburton. The company patented fracking technologies in the 1940s and remains one of the world’s largest suppliers of fracking fluid.

Fracking fluids and health

Over the past two decades, studies have linked exposure to chemicals in fracking fluid with a wide range of health risks. These risks include giving birth prematurely and having babies with low birth weights or congenital heart defects, as well as heart failure, asthma and other respiratory illnesses among patients of all ages.

Though researchers have produced numerous studies on the health effects of these chemicals, federal exemptions and sparse data still make it hard to monitor the impacts of their use. Further, much existing research focuses on individual compounds, not on the cumulative effects of exposure to combinations of them.

Chemical use in fracking

For our review we consulted the FracFocus Chemical Disclosure Registry, which is managed by the Ground Water Protection Council, an organization of state government officials. Currently, 23 states – including major producers like Pennsylvania and Texas – require oil and gas companies to report to FracFocus information such as well locations, operators and the masses of each chemical used in fracking fluids.

We used a tool called Open-FracFocus, which uses open-source coding to make FracFocus data more transparent, easily accessible and ready to analyze.

This 2020 news report examines possible leakage of fracking wastewater from an underground injection well in west Texas.

We found that from 2014 through 2021, 62% to 73% of reported fracks each year used at least one chemical that the Safe Drinking Water Act recognizes as detrimental to human health and the environment. If not for the Halliburton Loophole, these projects would have been subject to permitting and monitoring requirements, providing information for local communities about potential risks.

In total, fracking companies reported using 282 million pounds of chemicals that would otherwise regulated under the Safe Drinking Water Act from 2014 through 2021. This likely is an underestimate, since this information is self-reported, covers only 23 states and doesn’t always include sufficient information to calculate mass.

Chemicals used in large quantities included ethylene glycol, an industrial compound found in substances such as antifreeze and hydraulic brake fluid; acrylamide, a widely used industrial chemical that is also present in some foods, food packaging and cigarette smoke; naphthalene, a pesticide made from crude oil or tar; and formaldehyde, a common industrial chemical used in glues, coatings and wood products and also present in tobacco smoke. Naphthalene and acrylamide are possible human carcinogens, and formaldehyde is a known human carcinogen.

The data also show a large spike in the use of benzene in Texas in 2019. Benzene is such a potent human carcinogen that the Safe Drinking Water Act limits exposure to 0.001 milligrams per liter – equivalent to half a teaspoon of liquid in an Olympic-size swimming pool.

Many states – including states that require disclosure – allow oil and gas producers to withhold information about chemicals they use in fracking that the companies declare to be proprietary information or trade secrets. This loophole greatly reduces transparency about what chemicals are in fracking fluids.

We found that the share of fracking events reporting at least one proprietary chemical increased from 77% in 2015 to 88% in 2021. Companies reported using about 7.2 billion pounds of proprietary chemicals – more than 25 times the total mass of chemicals listed under the Safe Drinking Water Act that they reported.

Closing the Halliburton loophole

Overall, our review found that fracking companies have reported using 28 chemicals that would otherwise be regulated under the Safe Drinking Water Act. Ethylene glycol was used in the largest quantities, but acrylamide, formaldehyde and naphthalene were also common.

Given that each of these chemicals has serious health effects, and that hundreds of spills are reported annually at fracking wells, we believe action is needed to protect public and environmental health, and to enable scientists to rigorously monitor and research fracking chemical use.

Based on our findings, we believe Congress should pass a law requiring full disclosure of all chemicals used in fracking, including proprietary chemicals. We also recommend disclosing fracking data in a centralized and federally mandated database, managed by an agency such as the EPA or the National Institute of Environmental Health Sciences. Finally, we recommend that Congress repeal the Halliburton Loophole and once again regulate fracking under the Safe Drinking Water Act.

As the U.S. ramps up liquefied natural gas exports in response to the war in Ukraine, fracking could continue for the foreseeable future. In our view, it’s urgent to ensure that it is carried out as safely as possible.

About the Author:

Vivian R. Underhill, Postdoctoral Researcher in social Science and Environmental Health, Northeastern University and Lourdes Vera, Assistant Professor of Sociology and Environment and Sustainability, University at Buffalo

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Energy Opinions

07 Apr

What Binance’s US lawsuit says about the future for cryptocurrency regulation

By Andrew Urquhart, University of Reading and Hossein Jahanshahloo, Cardiff University

The world’s largest cryptocurrency exchange, Binance, has been hit with a lawsuit by US regulator the Commodity Futures Trading Commission (CFTC). This is not the first time a cryptocurrency exchange has been charged by a regulator. But this particular case involves a regulator that does not directly oversee cryptocurrencies. This indicates how regulators – particularly those in the US – hope to clamp down on the cryptocurrency industry.

The CFTC’s lawsuit alleges that Binance violated US derivatives laws by offering its derivative trading services to US customers without registering with the right market regulators. It says Binance has prioritised commercial success over regulatory compliance.

The CFTC has also levied charges against Binance’s founder and CEO, Changpeng Zhao (known as CZ) and former chief compliance officer Samuel Lim. They are charged with taking steps to violate US laws, including directing US-based “VIP customers” to open Binance accounts under the name of shell companies. The regulator has pointed to chat messages as evidence of CZ and Sim’s knowledge of various criminal groups using the exchange.

People visit Binance nearly 15 million times a week to trade on the over 300 cryptocurrencies it offers in more than 1,600 different markets. CZ is an outspoken advocate for cryptocurrencies and regularly tweets about the industry and his company. He even tweeted a link to his initial response to the recent CFTC charges, which he called “unexpected and disappointing”. Promising full responses in due time, he said:

Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint.

Last year CZ’s tweets arguably contributed to the collapse of FTX, one of his company’s main rivals. Binance saw its market share grow following FTX’s collapse.

So, this charge – against not only a crypto giant but also the company of an outspoken industry advocate – has created further upheaval in a market that has already suffered multiple crises in the last year. Investors withdrew a reported US$1.6 billion (£1.3 billion) from Binance within days of the CFTC’s announcement of its charges. These outflows could continue if US regulators tighten their squeeze on crypto companies further, causing major players like Binance to shift focus to other jurisdictions.

Creeping oversight

The CFTC aims to “protect the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets”. Previous actions by this regulator in 2021 against Tether and Bitfinex resulted in major fines and a loss of credibility for the crypto industry.

But a statement published at the time by one of the CFTC’s five commissioners, Dawn Stump, pointed out that the CFTC doesn’t actually have responsibility for regulating cryptocurrencies. She warned that these fines might “cause confusion about the CFTC’s role in this area”. She said the action was based on defining stablecoins (a type of cryptocurrency) as a commodity, but: “we should seek to ensure the public understands that we do not regulate stablecoins and we do not have daily insight into the businesses of those who issue such”.

These latest charges against Binance focus on its activities in derivatives – financial contracts that are linked to the value of an asset such as oil or, in this case, cryptocurrencies. This is a market the CFTC does regulate.

Another US financial regulator, the Securities and Exchange Commission (SEC), has also been ramping up its crypto oversight activities. As well as focusing on the Initial Coin Offering market, it saw a 50% increase in enforcement actions against digital asset companies last year compared to 2021.

Crypto market changes

So, Binance is up against two powerful US financial regulators. Some experts have warned that “significant regulatory action could prompt Binance to increasingly shift its business operations beyond the United States”. Certainly, the fact that Binance held a 92% share of the crypto market at the end of 2022 means it facilitates many transactions and offers a lot of liquidity to traders around the world, including in the US.

A trader’s capacity to find competitive prices when buying and selling, as well as sources of liquidity (or other people to trade with) would be affected by the loss of or pull back of one of the world’s top ten crypto exchanges. This would be bad news for retail and institutional investors who could be confronted with a smaller and potentially more expensive market as a result.

And even if the complaints and investigations by the CFTC and SEC take a while to conclude, as is likely, the US legislature may step in before that. A report published by the Financial Times days after the CFTC announcement alleges that Binance has hidden links to China for many years. A statement issued by the the exchange to the FT said this is not “an accurate picture of Binance’s operations” and that the paper’s sources were “citing ancient history (in crypto terms)”.

But recent actions against Chinese tech company Huawei and social media platform Tiktok indicate political leaders are keen to crack down on Chinese companies’ access to US technology systems and customer data. So any similar concerns could lead US politicians to start acting in this area as well.

About the Authors:

Andrew Urquhart, Professor of Finance & Financial Technology, ICMA Centre, Henley Business School, University of Reading and Hossein Jahanshahloo, Assistant Professor in Finance, Cardiff University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Cryptocurrencies Opinions

07 Apr

Carmakers are mistaken if they think chip shortages are over – they need to reinvent themselves while there’s time

By Howard Yu, International Institute for Management Development (IMD)

Finally, carmakers got a break. Those in the UK boosted their output by over 13% in February as supply-chain pressures subsided, especially the persistent global shortage in microchips, also known as semiconductors. This “signals an industry on the road to recovery”, declared UK motoring trade association the SMMT. Well, up to a point.

Early in the pandemic, carmakers slashed sales forecasts as demand for cars evaporated, falling 47% in US and 80% in Europe in the first couple of months of lockdowns. Carmakers couldn’t see how sales could rebound quickly, which was a reasonable assumption at the time. In an industry where everyone has their own version of lean or just-in-time manufacturing, where unsold inventories are seen as tantamount to incompetence, they quickly scaled back orders from their supply chain.

Car parts suppliers such as Bosch and Continental reacted by scaling back their production – and naturally, their own suppliers, such as NXP and Infineon, also reduced their forecasts. These second-order effects went deep into the supply chain, eventually converging on the great and mighty semiconductor manufacturer in Taiwan, TSMC (Taiwan Semiconductor Manufacturing Company).

A modern car can easily contain more than 3,000 microchips. These control brakes, doors, airbags and windscreen wipers; they even support advanced functions like driver assistance and navigation control. Chipsets are like golden screws.

Yet obviously, many other industries depend on chips too. At the same time as carmakers were reducing their orders, manufacturers of gadgets such as games consoles, TVs and home appliances were seeing orders surging as consumers were forced to stay at home. They increased their chip requirements, and TSMC was more than happy to oblige.

It then became apparent to carmakers later in 2020 that they had overreacted. But by the time they woke up to this and ramped up orders, it was too late. TSMC was running all of its factories at maximum capacity to meet the surge in gadget demand, and there were no more chips available for carmakers.

As a result of this global semiconductor scarcity, worldwide vehicle production was approximately 11 million units, or about 12%, lower in 2021 than it would otherwise have been.

What carmakers got wrong

No one could have predicted the outbreak of COVID. Nor could anyone have foreseen the ramifications on the supply chain as the virus receded. Still, every executive in the car industry knows the importance of computing power in a modern car. A car is a supercomputer on wheels, they’ll say. And yet they didn’t treat chipsets as a critical area. In other words, they were happy to let their suppliers worry about chip requirements and not have any direct involvement with chipmakers.

Why? Because chips don’t involve mechanical engineering. From the boardroom to the shop floor, carmakers generally focus on final assembly. Chipset design and fabrication is one of many things that gets outsourced.

So during the pandemic, most carmakers had little choice but to perfect the art of triaging their chips: for example, General Motors hoarded them for expensive models, temporarily shutting down factories that produce lower-priced sedans.

Others instead removed features from vehicles that rely on microprocessors. BMW did away with parking assistance and even touchscreen capabilities in various models. It also withdrew semi-autonomous driving functionality from the X3, its top-selling model. Mercedes-Benz eliminated features such as high-end audio and wireless phone-charging from a number of vehicles.

The future threat

Car production is now increasing as the high pandemic demand for chips for household gadgets has fallen away. Still, it would be unwise to conclude that things are back to normal. Demand for chips is likely to look so different in future as we see the rollout of technologies like AI, the internet of things, and 5G/6G.

Major chipmakers are boosting capacity to meet this extra demand, with big new US facilities in the offing, for example. Yet it will take time for this to come on stream, and it’s still difficult to predict whether it will meet demand.

New product categories can appear unexpectedly, in a similar way to how bitcoin mining suddenly led to unforeseen chip demand. As Professor Rakesh Kumar in the Electrical and Computer Engineering department at the University of Illinois observes: “The exact nature, speed and magnitude of the increase in demand is still unknown.”

As we saw during the pandemic, chip factories also typically run close to maximum capacity, leaving production extremely susceptible to disruptions. Natural disasters like earthquakes and floods can cause problems, as can accidents such as fires and power outages. In March 2021, for instance, a fire at a Renesas Electronics chip factory in Japan caused a significant disruption to supplies over and above the pandemic-related problems. Geopolitical or military tensions, including those between the US and China, could also affect production in future.
The implication is clear: carmakers must cultivate in-house expertise in this area. Rather than relying on suppliers or their sub-suppliers for semiconductors, they need to directly engage with chipmakers and do the relevant designs in-house. For example, Ford announced a collaboration with US chipmaker GlobalFoundries in 2021 to create chips for its vehicles while exploring the prospect of expanding domestic chip production.

This approach is already common practice among newer, more self-sufficient carmakers such as Tesla and China’s BYD and NIO, who all have extensive operations dedicated to designing or even producing their own chipsets.

These changes will not be easy. Yet the cost of clinging to the status quo will far outweigh the difficulties in the transition. For any company dependent on semiconductors, their resilience and future success hinge on getting this right. The correct response to the end of the pandemic is not to say “back to normal” but “never again”.

About the Author:

Howard Yu, Professor of Management and Innovation, International Institute for Management Development (IMD)

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Economics & Fundamentals Opinions

07 Apr

Why Britain’s new CPTPP trade deal will not make up for Brexit

By Terence Huw Edwards, Loughborough University and Mustapha Douch, The University of Edinburgh

The UK recently announced that it will join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), giving British businesses access to the 11 other members of the Indo-Pacific trade bloc and bringing its combined GDP to £11 trillion.

Some commentators have suggested the deal could make up for Brexit. It’s been called “a momentous economic and strategic moment” that “kills off any likelihood that it [the UK] will ever rejoin the EU customs union or single market”. Shanker Singham of think tank the Institute of Economic Affairs has even said: “it’s no exaggeration to say that CPTPP+UK is an equivalent economic power to the EU-28-UK”, comparing it to a trade deal between the UK and EU members.

UK business and trade secretary Kemi Badenoch echoed such sentiments, telling Times Radio:

We’ve left the EU so we need to look at what to do in order to grow the UK economy and not keep talking about a vote from seven years ago.

The problem with this fanfare is that the government’s own economic analysis of the benefits of joining this bloc is underwhelming. There is an estimated gain to the UK of 0.08% of GDP – this is just a 50th of the OBR’s estimate of what Brexit has cost the UK economy to date. Even for those that are sceptical about models and forecasts, that is an enormous difference in magnitude.

Of course, the CPTPP is expected to offer the UK some real gains. It certainly provides significant potential opportunities for some individual exporters. But the estimated gains for Britain overall are very small.

The main reason for this is that, apart from Japan, the major players of the global economy are not in the CPTPP. The US withdrew from the Trans Pacific Partnership (the CPTPP is what the remaining members formed without it). And China started negotiations to join in 2022, but current geopolitics now make its entry highly improbable. India was never involved.

In addition, the UK already has free trade agreements with nine out of the 11 members. The remaining two, Malaysia and Brunei, are controversial due to environmental threats from palm oil production to rainforests and orangutans.

Britain’s existing trade agreements with CPTPP members

A table listing the existing British trade agreements with CPTPP members. — Author provided using GDP data from the World Bank and trade data from UN Comtrade.

And despite the widespread public perception of the Asia-Pacific area as a hub of future growth, the performance and prospects of the CPTPP members are a mixed bag. The largest member, Japan, is arguably in long-term decline, as is Brunei, while just three members (Vietnam, Singapore and New Zealand had average growth in the last decade above 3% annually.

Finally, distance really does matter in trade. All the CPTPP members are thousands of miles from the UK, which explains their relatively small shares in UK trade at present.

Some benefits of CPTPP

While all of these points pour cold water on the suggested gains, there are some potential benefits from the CPTPP agreement, which allows for mutual recognition of certain standards. This includes patents and some relaxation of sanitary and phytosanitary rules on food items.

However, agreements over standards will involve the UK submitting to international CPTPP courts on these issues. This sits uncomfortably with many of the “sovereignty” objections to the European Court of Justice in relation to Brexit (largely from many of those who have extolled the CPTPP). It’s also notable that out of the nine agreements with CPTPP members that existed before the UK signed this deal, all but two are rollovers of previous EU deals.

But a trade deal with the CPTPP is worth more to the UK than separate deals with each member due to requirements around “rules of origin”, which determine the national source of a product. When a product contains inputs from more than one country, a series of separate free trade agreements may not eliminate tariffs. But if all the relevant countries are members of a single free trade agreement, then rules of origin on inputs from other members cease to be a problem (although there might be some issues if some members do not police the requirements properly).

Not the ideal agreement

While these benefits should be recognised, we should also acknowledge that the CPTPP is not the ideal agreement for Britain. As stated above, distance really does matter in trade – this is overwhelmingly accepted by modern trade economists.

Research shows that the rate at which trade declines with distance has barely changed over more than a century. This might seem strange because transport costs have fallen over time. But, as transport and communications have improved, firms have outsourced much of their production to complex supply chains that often cross national borders many times, with “just-in-time” supply schedules to keep down the costs of holding large stocks.

This means that, while trade everywhere has grown, there is still a big premium for trading (many times) across borders between contiguous countries. It is exactly this type of trade which benefits most from big comprehensive trade agreements that simplify rules of origin and regulatory paperwork.

This suggests that, while some elements of the the CPTPP offer benefits to the UK, it is unlikely to boost its trade in the way it does between countries around the Pacific Rim. For this sort of boost, the UK really needs to look towards its own neighbours. Of course, this is just the sort of agreement that Badenoch seems reluctant to discuss.

About the Author:

Terence Huw Edwards, Senior Lecturer in Economics, Loughborough University and Mustapha Douch, Assistant Professor in Economics, The University of Edinburgh

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Economics & Fundamentals Opinions

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