Commodity Trading Advisors (CTAs) are maintaining a risk-on positioning while using Gold and the US Dollar as risk-off hedges, according to UBS.
Despite equities moving sideways in November, with the exception of US and Canadian indices, CTAs have not significantly reduced their long positioning. This is attributed to lower realized volatilities, which have helped limit outflows.
Currently, CTAs’ overall equity beta is in line with its long-term average, and their equity risk is now predominantly focused on relative value trades, favoring long positions in US equities versus short positions in European and Latin American stocks.
In currency markets, after a recent bout of US Dollar buying, estimated at around $50 to $60 billion, CTAs are believed to have limited room to increase their positions, particularly in G10 currencies.
Profit-taking is anticipated in currencies such as the Indian Rupee (INR), Peruvian Sol (PEN), Israeli (ILS), Canadian Dollar (CAD), and Norwegian Krone (NOK). However, the predominant expectation is for a stronger US Dollar.
The focus of CTAs has shifted within the commodities sector, with significant sales in metals over the past few weeks. Going forward, they are likely to turn their attention to purchasing energy and agricultural products.
The current market signals indicate a bullish stance on stocks, credit, and the US Dollar, while a bearish view is held on bonds. Specifically, CTAs are bullish on most equity markets, particularly in the US, while holding bearish positions on Latin American indices, Kospi2, and .
In the currency markets, there is bullish sentiment on the US Dollar and EMEA currencies, neutrality on the British Pound, and bearishness on commodity and Latin American currencies. For commodities, there is a bullish outlook on precious metals, a neutral stance on industrial metals, and a bearish perspective on energy and agricultural products.
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