CTAs have liquidated approximately $40 to $50 billion in global stocks, primarily through US indices, according to UBS. Further reductions are anticipated, especially in US large caps, although CTAs are expected to increase their positions in select European markets, including the UK FTSE, CAC, and SMI.
In the bond market, CTAs have been exerting considerable pressure, having doubled their short positions in the past two weeks, translating to sales of $60 to $70 million in Dv01. Despite the expectation of a slowdown in the pace of selling, models still predict substantial selling flows of $20 to $30 billion. Bond markets in Europe and the UK seem particularly vulnerable to this trend.
The credit sector has seen CTAs maintain maximum long positions for over two years. However, recent momentum has weakened, indicating a potential shift towards purchasing protection, starting with investment-grade credit.
The foreign exchange market has CTAs displaying extreme bullishness on the US Dollar, with current positions reaching the 96th percentile of a more than 30-year history. While some profit-taking in G10 currencies is anticipated, the overall outlook suggests a continued strong US Dollar.
Energy contracts have attracted aggressive buying from CTAs, who have turned net long on the sector this month and are expected to persist in buying significantly. Meanwhile, a reduction in short positions in industrial metals is forecasted, although no major actions are expected in other commodities.
The current signals from CTAs indicate a bullish stance on stocks, credit, and the US Dollar, while adopting a bearish view on bonds and agriculturals. Equity markets show a bullish outlook for the US, Japan, and the EU, with a neutral stance on the UK and small caps, and bearishness towards Latin American markets and the Kospi2.
Bond markets are generally bearish, except for Korea. Credit is bullish across the board. Currency trends are bullish for the USD and EMEA FX, with bearishness seen in G10 currencies, particularly commodity-related FX. In commodities, CTAs are bullish on precious metals and energy, while holding a bearish view on industrials and agriculturals.
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