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Sun, 26th June 2016

Anirudh Sethi Report

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Archives of “futures contract” Tag

ALERT- CME tweaks price-change limits on Brexit volatility

Futures exchange CME Group has taken “emergency action” as the UK casts votes in its historic EU referendum.

In a notice late Wednesday, Chicago-based CME said it had raised special price fluctuation limits in currency futures and benchmark interest rate futures

Fluctuation limits serve as circuit breakers in futures markets, temporarily locking trading after extreme price moves. Limits for dollar-sterling futures normally range from 400 ticks to 1,600 ticks, in escalating progression.

The emergency action, in place to Friday, will double limits for currency contracts, bringing the range for the pound from 800 ticks to 3,200 ticks.

“The exchanges determined that there is a strong likelihood that the ‘Brexit’ vote may result in increased price volatility in CME FX and CME and CBOT Interest Rate futures products,” CME said in a notice to traders. “The emergency action is being taken as a precautionary measure and is intended to ensure fair and orderly trading in all these products”.

As CME was taking emergency action, it was also using Brexit vote as a marketing opportunity. In an email blast sent out early Thursday London time, the exchange operator touted its contracts.

Silver Options Traders Follow Gold To Longest Bullish Bet Since 2009

Where gold goes, silver often follows, and in the options markets that is increasingly so…

3 month Puts have now been cheaper than Calls for more than 97 days…

As the chart shows, bearish options on exchange-traded funds tracking the metals have been cheaper than bullish ones for the longest time since at least 2009.

Futures trading in China jumbles global steel market

Speculative trading in China’s futures market has caused wild swings in prices for some steel products, affecting other countries since higher prices lead to increased production in a country with an overcapacity problem.

The spot market is being roiled by trading of steel-derived commodities such as rebar and hot-rolled coil listed on the Shanghai Futures Exchange as well as iron ore and coal contracts traded on the Dalian Commodity Exchange. 

China produced over 800 million tons of crude steel in 2015. This figure accounted for nearly half of global output despite being the country’s first decrease in 34 years. And China’s steel exports in 2015 topped 100 million tons for the first time.

Against such a backdrop, futures trading for iron ore in Dalian jumped to 500 million tons a day in March. In Shanghai, trading of rebar reached about 120 million tons a day in April — larger than Japan’s annual crude steel output.

Economic stimulus by China’s government encouraged the rise of prices this year. While Chinese hedge funds rattle the nonferrous metal market, institutional investors such as investment trusts appear to have increased buying of steel-related futures contracts, said Naomi Suzuki, a senior analyst at Sumitomo Corp. Global Research. The price rally is not driven by real demand.

Position Slashed in Yen ,AUD .Booked Profit in Crude by Speculators -Data Indicating

There were only two significant speculative position adjustments in the latest CFTC reporting week ending May 24.  Speculators liquidated 31.4k gross long yen contracts, leaving the bulls with 54.8k contracts.  It is the largest weekly adjustment since last September.
Speculators have not been particularly keen to pick a yen top.  The gross short position rose by 5.5k contracts to 32.7k, and only 2k contracts on the month, while the yen has weakened 3.5% in the spot market  
Speculators also slashed their gross long Australian dollar position by 20.1k contracts to bring the position to 51.7k contracts. It is the fourth consecutive week that speculators have culled their longs by more than 10k contracts, our threshold for “significant” adjustments.  Over the course of the four weeks, the gross long position has been halved.
The bears have not been making much of a stand.  The gross short position increased by 4.7k contracts and is up about 7k contracts over the past two reporting periods while the gross longs have been cut by 31k contracts at the same time.
Outside of the Australian dollar and yen, the only other currency futures that saw speculators shift gross positions by more than 5k contracts was the euro.  The gross longs were trimmed by 7.8k contracts to 94k, which is the smallest speculative gross long position in seven weeks.  It actually peaked in early February a little more than 114k contracts, but it has been steady and was at 113k contracts at the start of the month. Speculators added 7.5k contracts to their gross short euro position, lifting it to 131.9k contracts.  It has increased slightly for the second consecutive reporting period, but outside of this month, the gross short position is the smallest since July 2014.

Demand for oil storage soars amid supply glut

With crude oil piling up around the world the space inside terminals is now a hot commodity.

The market for crude oil storage futures has been expanding since last year’s launch. Instead of giving buyers oil, the futures contracts confer the right to store it — in caverns on the Gulf of Mexico coast.

Open interest, or the number of contracts outstanding, has increased to the equivalent of 23.5m barrels of capacity, more than doubling since the beginning of the year.

Oil companies, refiners and banks have been trading the contracts, said Bo Collins, co-founder of Matrix Markets, which helped develop them. “The only crowd that’s sort of missing from the mix is the HFT [high-frequency trading] crowd,” he said.

The contracts were introduced as a supply glut caused oil stocks around the world to swell, driving up demand for tanks.

Buyers get the right to store high-sulphur “sour” crude at the Louisiana Offshore Oil Port (Loop), which contains one of the biggest terminals in North America.

In the Gulf coast region that includes Loop, crude stocks have risen to records of more than 280m barrels, up 18 per cent from the beginning of the year. Nationwide, oil stocks rose by 1.3m barrels last week to 541.3m, just shy of a 1929 record, the energy department reported on Wednesday.

Speculative Position -An Update For Forex ,Treasury ,Crude

The US dollar staged an impressive reversal against many of the major foreign currencies on May 3. In the following week, speculators in the currency futures market made significant adjustment in their holdings. We identified a change in the gross position in the currency futures of 10k contracts or more to be significant. 
In the week ending May 3, there were two such adjustments. In the CFTC reporting period ending May 10, there six of the 16 gross position we track surpassed the 10k contract threshold.  Let’s begin by look at the three currency futures in which speculators carry a net short position: the euro, sterling, and the Mexican peso. 
Euro bulls and bears made significant adjustments.  The bulls took profits on 11.8k contracts to leave a gross long position of 101.3k contracts.  The bears continued to cover shorts and took out another 13.5 contracts to leave 123.1k still short.  This is the smallest gross short euro position since July 2014.  In early December, it stood at 262k contracts.  The adjustment saw the net short euro position slip to 21.9k contracts from 23.6k.  The net short position has been reduced for eight weeks running.  
Similarly in sterling, speculators reduced both gross long and gross short exposure in the Commitment of Traders week ending May 10.  The gross short position was pared by 14k contracts to 72.6k.  The gross long position was reduced by almost 20%, as 14k contracts were liquidated, leaving 37.6k.  The net short position slipped to 34.9 contracts from 40.4k to extend the reduction for the third consecutive week. 

Chinese Commodity Carnage Unwinds Entire Bubble – Steel Futures Crash Most Since 2009

Well that de-escalated quickly…

As Reuters reports, 

Chinese steel futures were on course for their biggest weekly fall since 2009 on Friday, as a selloff in the country’s commodities showed signs of spreading to other global markets for raw materials such as palm oil and base metals.

Weakening fundamentals along with strong measures by Chinese exchanges to stamp out speculative activity have helped reverse momentum in China’s massive commodity futures markets from bullish to bearish in less than a month.

The deepening losses have started to weigh on global markets elsewhere, in a similar manner to the boom and bust cycle in the country’s stock markets last year.

This is what government-intervention-driven malinvestment-creating unintended consequences look like…

Iron Ore, Rebar Crash Into Bear Market

Real demand for steel in China dropped at least 7% in April from the year before, according to Citigroup’s Tracy Liao estimates, so it should not be a total surprise that the frenzied speculative buying in Iron Ore, Rebar, and various other industrial metals in China has crashed back to reality as volumes plunge, dragging The Baltic Dry Freight Index with it as yet another government-manipulated ‘signal’ collapses into a miasma of malinvestment and unintended consequences.

As The Wall Street Journal reports, to the extent that China’s industrial recovery explains why iron ore and steel prices have jumped this year, China’s latest trade data served as a reminder of how brittle this reason is. 

China’s steel net exports rose 8.8% in April from a year before and 9.4% between January and April from a year ago. That raises the question: Why are mills exporting more steel when Shanghai front-month futures prices for rebar steel rocketed 48% between January and April, and signaled a potential rise in demand? Shouldn’t mills be selling more of what they make at home? And steel production is weak, so it isn’t as if producers are churning out more steel available for exports.

The answer may be that there is no sustainable increase in Chinese steel demand. Steel use picked up around March, but this was seasonal, and even then it wasn’t so dramatic. Steel traders, whose job is to anticipate demand from property developers and the like, held lower inventories at the start of this construction season than last year, suggesting they saw limited real demand in the pipeline.

Real demand for steel in China dropped at least 7% in April from the year before, Citigroup’s Tracy Liao estimates, based on changes in exports and inventories. The drop was at least 5% between January and April from the year before.

That reinforces fears that easy money-fueled speculation is the prime mover of steel and iron ore prices today. That “Churn” is over…

An Update on Yen ,AUD ,Euro ,Crude

Speculators in the futures market continued to pare short foreign currency positions but were cautious about expanding long positions in the CFTC reporting week ending May 3.  In fact, two of the three largest adjustments were the cutting of gross long Japanese yen and Australian dollar positions.  
Speculators took profits on 11.8k contracts of gross long yen positions, leaving 85.6k contracts still long.  It was the second consecutive week that gross long yen positions were reduced.  The magnitude of the move was the second largest of the year.  It may be particularly noteworthy that the longs were cut as the dollar dropped over the reporting period from JPY111.30 to JPY105.50. 
The speculative gross long Australian dollar futures position was cut by 10.9k contracts, leaving the bullswith 99k contracts at the end of the statement period.  The decline in the Australian dollar after the end of the reporting period suggests the unwinding likely continued. The gross long position remains at elevated levels,  which outside of the previous week, is the largest in three years.  

BREAKING-China’s steel futures suffer biggest weekly loss ’09

China’s steel rebar futures fell 9.5 per cent this week, the biggest loss since the contract started seven years ago following measures by the country’s futures exchanges to curb speculative trading.

China’s three largest futures exchanges have raised transaction fees and margin requirements and reduced night trading hours over the last few weeks after a wave of speculative trading saw steel prices jump 50 per cent this year. In one day trading in steel rebar futures exceeded the turnover on the country’s equity exchanges

The average holding period over the past few weeks in China for steel rebar and iron ore futures has been 2 and 2.4 hours, according to analysts at Morgan Stanley.