Both positioning and politics are squarely in the forefront after a strong finish to the week. Crude Oil rose 2% on Friday with December option expiration in the rear-view mirror. The December futures contract is untradable and falls off the board tomorrow. However, we expect to see a continued repositioning that will drive prices higher. Aiding the bull case is the rift between Saudi Arabia and Iran. Reuters reported that Saudi Arabia and other Arab foreign ministers will meet in Cairo, Egypt on Sunday to discuss confronting Iran and its Lebanese Shi’ite ally Hezbollah. Tensions are running high after the Lebanese Prime Minister announced his resignation while in Riyadh and because of the ongoing Yemen conflict. Though the open long and net-long position are at the highest since February, we believe buyers won’t shy away from these high prices ahead of the November 30th OPEC meeting. If you look back at the multi-year picture, a run of higher lows since February 2016 and now a higher high than earlier this year on strong volume; this gives reason for the net-long position to expand from the level in which it was in February. Our near-term target ahead of November 30th remains 58.97.
The Minutes from the November 1st Fed meeting are due out on Wednesday. Though the meeting itself did not bring any surprises, we have since heard a handful of Fed members speak their loudest in a few months. The December hike is essentially priced in, but the real question is what type of rhetoric this hike will be wrapped with. Last December we saw quite the hawkish one, this sent the Dollar Index above 103 and the 10-year below 123. We expect to see more of a dovish rhetoric this year and have already begun to hear it from the likes of Fed Presidents Evans and Bullard. Regardless, since 2013 the December meeting has opened the door for an opportunity to buy treasuries in the week or two after. These Minutes will give us a glimpse of this potential opportunity.
We love to find over-crowded trades and Friday’s Commitment of Traders showed a new record net-short position in Corn. December options expiration is this Friday and large open interest that is in the money on the put side should create a magnet effect to 350 to evaporate this premium. However, with calls accumulating at and above the 350 level, there could be a slight lid effect until after expiration. We like positioning long Corn and expect for a short-squeeze right around the corner. The massive short position in the Yen has also been a major focus of ours. Though it is not the record we initially thought, we must go back to 2007, near when positions became reportable in this modern way, to find a position this large. We are long term bearish the Dollar and a weaker Dollar will begin to squeeze these shorts. Everyone already knows the Bank of Japan plans to keep policy loose for an extended period of time; this is already priced in. Imagine the race to cover shorts and flip long if there is any traction to the talk that began last week on an exit strategy from current policy. The record short position in 2007 sparked a 60% rally in the Yen, yes 60%.
Yes, Thanksgiving is on Thursday here in the U.S, but the markets are still open for a half day. However, it is not Thanksgiving in Europe or Canada. We are looking forward to German and U.K GDP, and Manufacturing and Services PMI data from across Europe on Thursday morning. As well ECB will release their Account of Monetary Policy Meeting (their Minutes). Furthermore, Canada is set to release Retail Sales. We expect an active day to set up Thursday following Wednesday’s Durable Goods and FOMC Minutes from here in the U.S.
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