On Friday (August 1st), data showed that hedge funds' overall risk appetite rebounded in the week ending July 28th, but exhibited extreme divergence in macro assets and commodities. Long positions in crude oil increased significantly, agricultural products saw a sentiment inflection point, and corn futures positions shifted from short to long. Precious metals saw widespread selling, while the long-term and short-to-medium-term US Treasury markets moved in opposite directions. The strong US dollar logic drove an accumulation of net short positions in non-US currencies. The following is a detailed breakdown of the position structure in various markets.

PART 2: Changes in Core Market Holdings

Precious metals: Widespread selling indicates weakening bullish sentiment.

Net long positions in gold decreased by 3,258 contracts to 120,328 contracts, while net long positions in silver were reduced by 1,614 contracts to 8,387 contracts, and net long positions in copper declined by 7,195 contracts to 66,490 contracts. This simultaneous reduction in holdings across all three indicates that the market is repricing the interest rate environment. With moderate inflation data and a hawkish tone from the Federal Reserve, gold lacks new catalysts, silver's industrial attributes are also under pressure, and copper reflects concerns about the growth rate of global manufacturing.

Energy: A Tale of Two Extremes, Crude Oil Selling and Natural Gas Short Selling

WTI crude oil futures and options saw a significant increase of 28,159 net long positions to 106,507 contracts, indicating bets on a tight supply-demand balance. The summer travel peak and supply-side disruptions jointly supported bullish sentiment. In contrast, speculative net short positions in natural gas across the four major markets increased by 5,281 contracts to 60,997 contracts, with ample inventories and expectations of mild weather emboldening short sellers, a stark contrast to crude oil.

Foreign Exchange: The US dollar stands out, while non-US currencies accumulate net short positions.

The net short positions in the euro were 72,447 contracts, the pound sterling 64,814 contracts, the yen 163,412 contracts, and the Swiss franc 33,462 contracts. All major non-US dollar currencies were net short, indicating a market-wide bet on the dollar's interest rate advantage. The large net short position in the yen reflects that the carry trade logic has not collapsed.

US Treasury Bonds: Overall net short positions increased, but short sellers at medium and short-term levels retreated significantly.

Overall, net short positions in US Treasury bond futures increased by 30,707 contracts to 217,497 contracts, indicating continued caution regarding rising long-term interest rates. However, net short positions in 2-year bonds sharply decreased by 30,023 contracts to 1,124,574 contracts, net short positions in 5-year bonds decreased significantly by 126,929 contracts to 1,146,400 contracts, net short positions in 10-year bonds decreased by 3,587 contracts, and net short positions in ultra-long-term Treasury bonds also decreased by 642 contracts. This set of divergent signals is quite intriguing—while funds are generally bearish on bonds, they are rapidly covering short positions in the short and medium term. The logic may point to two points: first, a pre-emptive pricing in the end of the interest rate hike cycle; and second, a belief that there is room for a steepening correction in the yield curve, using the long end to protect the short end.

Agricultural products: Sentiment reverses, corn futures surge, soybean futures jump

CBOT soybean net long positions surged by 29,794 contracts to 100,249 contracts, while corn positions shifted from net short to net long by 45,938 contracts, a significant increase of 49,224 net long contracts this week. While wheat net short positions remained at 23,228 contracts, they had been reduced by nearly 10,000 contracts. The bullish signals in the grain sector are evident, with weather premiums entering the market on a large scale. In soft commodities, coffee net long positions continued to increase by 1,757 contracts to 12,340 contracts; cotton net long positions decreased by 2,295 contracts to 70,542 contracts, indicating emerging concerns about demand. Sugar net short positions surged by 31,684 contracts to 124,903 contracts, while cocoa net short positions also increased slightly by 1,702 contracts, indicating that short sellers have strengthened their influence in these two commodities.

PART 3: Brief Summary

The week's fund flows paint a clear picture: the market accepts high interest rates as the norm, but has begun to rush into short- and medium-term US Treasuries; in the commodities sector, weather-related factors have taken over agricultural product pricing power, crude oil maintains its strong reality, while precious metals have lost their safe-haven premium. The divergence among multiple asset classes has deepened, and volatility is unlikely to remain subdued.

PART 4: [Frequently Asked Questions]

Q: Why is the overall net short position in US Treasuries increasing, but the short position in short- and medium-term Treasuries decreasing?
Overall, government bond futures are primarily long-term instruments, and the increase in net short positions indicates continued concerns about long-term interest rates. The significant withdrawal of short positions in 2-year and 5-year maturities likely reflects funds anticipating the end of the interest rate hike cycle and prematurely closing out bets on short-term rate increases. This also implies an expectation of a steepening yield curve; the logic at both the long and short ends is not contradictory, but rather two sides of the same coin. Question: What level of event is the overnight surge in corn futures?
Corn futures saw a net increase of nearly 50,000 long contracts this week, jumping from a net short position to a net long position of 45,000 contracts – a shift quite rare in historical comparisons. The driving force was the impact of weather patterns on yield expectations, with funds heavily covering short positions and establishing new long positions. This doesn't necessarily foreshadow a straight upward trend, but it at least indicates that the old bearish narrative has been broken, and the market's margin for error is narrowing. Question: Does the decline in net long positions in gold indicate a deteriorating trend?
While the reduction in gold holdings wasn't extreme, the simultaneous reductions in silver and copper indicate that speculative funds are withdrawing from interest rate-sensitive assets. High real interest rates are exerting pressure, and there's a lack of new safe-haven events. The current positioning structure resembles a portfolio adjustment rather than a comprehensive bearish outlook, but a lack of upward momentum in the short term is a consensus among most traders. Question: With crude oil long positions significantly increased, is there a risk of crowding out?
WTI net long positions increased by 28,000 contracts in a single week, bringing the total net long position to over 100,000 contracts. Historically, the position size remains within a moderate range, not extremely crowded. However, as prices approach seasonal highs, any signal of weaker-than-expected demand could trigger a sell-off. While supply and demand realities are strong, changes in the distribution of positions warrant continued monitoring. Question: Is this round of weather-related price movements in agricultural commodities sustainable?
The increased open interest in soybeans and corn indicates that funds are taking the weather threats during this critical growth period seriously. Short covering in wheat is also contributing to this trend. Typically, weather-related price movements are most aggressive in the early stages, requiring concrete production data for confirmation. Current open interest has already been established, but the extent of the price movement depends on rainfall and temperature model forecasts for the producing regions over the next two weeks.