UBS reports trend followers cautious amid market volatility
Investing.com -- UBS has provided an update on the current strategies of Commodity Trading Advisors (CTAs), noting a cautious stance due to increased short-term volatilities in the stock market and ambiguous price movements. CTAs are expected to maintain a sideline position in the near term, showing a preference for European and Chinese equity indices over those in the United States, with a particular underweight in mid and small-cap stocks.
In the bond market, CTAs have been rapidly offloading duration, having sold between $70 and $80 million worth of Dv01 in the past two weeks. Although this pace of selling is predicted to slow down, lower bond volatilities in Europe, which may lead to higher leverage, are anticipated to sustain some selling pressure.
Credit markets have seen CTAs adopt a long position once again, currently at 50% of the maximum long signal. They are expected to pause and await further spreads tightening before increasing their positions. In the foreign exchange (FX) market, CTAs have not shown significant activity since the last update, with minor selling in G10 currencies, specifically the Japanese Yen (JPY), and some buying in emerging market currencies like the Chinese Yuan (CNH) and Indonesian Rupiah (IDR). CTAs’ overall positioning remains quite short on the US dollar, at 82% of a 30-plus year distribution.
Commodities trading has seen CTAs begin to repurchase previously shorted energy contracts, with expectations for this trend to continue. Meanwhile, they remain fully long on gold, delaying any profit-taking, and hold a neutral stance on industrial metals and a short position on agricultural commodities. As June approaches, their positioning is expected to stay unchanged.
UBS’ current signals indicate that CTAs are neutral on stocks, bearish on the US dollar and bonds, and bullish on credit and gold. The equity outlook is bullish for China, the European Union, and Latin America, neutral for Japan, and bearish for the US and Asia excluding China.
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