Market Update: CTA Positioning Ahead of US Election and FOMC

November 5, 2024

In this week’s market commentary, we’re examining the positioning of Commodity Trading Advisors (CTAs) in light of the upcoming U.S. Election and Federal Open Market Committee (FOMC) meeting. These key events are driving CTAs to recalibrate their positions across equities, rates, commodities, and foreign exchange markets. Here’s a breakdown of the current landscape and important levels to monitor for potential CTA moves.

Key Takeaways

With both the U.S. Election and FOMC on the horizon, CTAs are “max long” in U.S. equities, indicating a strong bullish stance. However, initial sell levels are set well above the implied 1-day election move, with sell signals around 5719 in SPX (-0.6%), 19905 in NDX (-1.2%), and 2209 in RTY (-1.1%). On the rates side, CTAs are positioned “max short” across the U.S. Treasury curve, meaning they expect yields to rise and will likely cover their shorts if yields fall to certain levels, such as 108-01 in FV, 111-22 in TY, and 120-01 in US.

In FX and commodities, CTAs hold mixed positions. They’re particularly short in GBP/USD, with cover levels at 1.298 in GBP/USD and 0.923 in USD/CHF. Precious metals have CTAs positioned at “max long” in both gold and silver, with potential sell triggers at 2621 in Gold and 73.24 in Crude Oil if strength continues. These indicators highlight key levels that may prompt CTAs to adjust their positions as market conditions unfold.

Equities

CTAs are currently “max long” in U.S. equities, with an eye on the upcoming election and FOMC meeting. The first sell signals are around 5719 in SPX, 19905 in NDX, and 2209 in RTY, representing relatively minor distances from current prices (around -0.6% in SPX, -1.2% in NDX, and -1.1% in RTY). If markets begin to sell off significantly, CTAs may amplify the downside by liquidating positions.

In Europe, CTAs recently flipped short on the SX5E index following last week’s sell-off. If we see a recovery in Euro Stoxx, they may cover their shorts above 4916. In Asia, CTAs remain “max long” in MXEF (cover level at 1130) and NKY (cover level at 38295), indicating confidence in regional equities, albeit with close watch on sell triggers.

Rates

In the rates market, CTAs are “max short” U.S. Treasuries across multiple tenors, even as recent Treasury rallies have brought market levels closer to CTA cover levels. Key levels to watch include 108-01 in FV, 111-22 in TY, and 120-01 in US. The potential for a short-covering rally exists if bond markets continue to strengthen, especially as results from the election and FOMC could significantly impact yields.

Outside the U.S., CTAs have moved “max short” in Bunds, while holding moderately short positions in BTPs and JGBs. If yields were to decrease, CTAs may cover these shorts, adjusting to new expectations around central bank policies in Europe and Japan.

Commodities

Recent trends in oil saw CTAs cover some short positions, though they are watching for levels around 73.24 to potentially flip long if prices continue rising. In metals, CTAs are “max long” in both gold and silver, though current levels are far from their sell thresholds. With a potential post-election dollar strengthening, CTAs are particularly alert for price moves that could prompt reduction in gold and silver holdings, especially if we see a decline of around -4.7% in Gold or -5.5% in Silver.

In copper, CTAs are near their final buy signals, which would indicate a shift to “max long” following October’s moderate losses. Commodities are often sensitive to shifts in economic outlook, so any significant post-election or FOMC news could influence positioning.

Foreign Exchange

CTA positions in FX have remained largely unchanged, with funds holding mixed USD positions across six currency pairs. Significant focus is on GBP/USD and USD/CHF. If the dollar strengthens post-election, funds may start flipping long in these pairs, covering shorts at levels like 1.298 in GBP/USD and 0.923 in USD/CHF.

For other currency pairs, CTAs are generally “max long” USD going into the election. Key watch points include 1.0955 in EUR/USD and 66.55 in AUD/USD. As volatility is anticipated in the FX markets around the election, these levels could be critical triggers for CTA repositioning.

CTAs are on high alert ahead of the U.S. Election and FOMC, positioning themselves strategically across multiple asset classes. U.S. equities are being held at “max long,” while the Treasury curve is positioned “max short.” Commodities and FX show more mixed positions, with some significant levels identified for potential flips. As election and FOMC results unfold, these levels will serve as crucial indicators for CTA moves, potentially sparking significant market responses.

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