CTAs Focus on Relative Value Trades: UBS
According to UBS, Commodity Trading Advisors (CTAs) are maintaining risk-on positions while using Gold and the US Dollar as risk-off hedging tools. In November, despite the sideways movement of equities excluding US and Canadian indices, CTAs have not significantly reduced their long positions. This situation is attributed to low realized volatility, which helps to limit fund outflows.
Currently, the overall equity beta of CTAs is in line with the long-term average, and equity risks are now primarily focused on relative value trades. In these trades, long positions are favored in US equities, while short positions are taken in European and Latin American stocks.
In the currency markets, following a recent estimated purchase of around $50 to $60 billion in US Dollars, it is thought that CTAs 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 Shekel (ILS), Canadian Dollar (CAD), and Norwegian Krone (NOK). However, the overall expectation is towards a stronger US Dollar.
The focus of CTAs in the commodities sector has shifted, with substantial sell-offs occurring in metals over the past few weeks. Moving forward, they are likely to pivot towards purchasing energy and agricultural products.
Current market signals suggest a positive stance on equities, credit, and the US Dollar, but a negative outlook on bonds. Specifically, while CTAs hold a positive view across most equity markets, particularly in the US, they are taking negative positions in Latin American indices, Kospi2, and CAC.
In the currency markets, a positive outlook exists for the US Dollar and EMEA currencies, a neutral stance on the British Pound, and a negative perspective for commodities and Latin American currencies. In commodities, there is a positive outlook for precious metals, a neutral view for industrial metals, and a negative perspective for energy and agricultural products.