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The latest Commodity Futures Trading Commission (CFTC) figures show that speculators, especially leveraged funds, ramped up their short Treasuries positions in the week ending Oct. 31, most notably at the short end of the curve. That is significantly larger than the peak combined net short position from 2019 of just over 4 million contracts, boosted by fresh record short positions in the two- and five-year space. In October leveraged funds increased their net short position in two-year futures by 242,000 contracts to 1.6 million contracts, and by 193,000 contracts in five-year futures to 1.93 million. They only grew their net short position in 10-year futures by 10,000 contracts, however. But funds play Treasuries futures for other reasons, like relative value trades, and this year, the basis trade.

Persons: Brendan McDermid, Javier Corominas, Treasuries, Jerome Powell, Jamie McGeever, Miral Fahmy, Jonathan Oatis Organizations: New York Stock Exchange, REUTERS, Rights, Futures Trading Commission, Regulators, Reuters, Oxford Economics, Treasury, Citi's, Thomson Locations: New York City, U.S, Rights ORLANDO , Florida, Citi's U.S

CFTC data show that funds and speculators are holding a chunky net short yen position worth around $8.2 billion. Contrast that with the euro position, and it is not difficult to envisage a potential narrowing of the gulf in the weeks and months ahead. Citi's U.S. economic surprises index has been positive since May and the euro zone index has been in negative territory since May. Euro zone interest rate traders reckon the ECB is done raising rates, and are now betting on around 70 bps of rate cuts next year. "Today's ECB policy update and stronger U.S. data for Q3 is further encouraging those expectations placing downward pressure on EUR/USD," MUFG's Lee Hardman wrote on Thursday.

Persons: Pedro Nunes, gunning, MUFG's Lee Hardman, Jamie McGeever, David Evans Organizations: Bank of, REUTERS, Rights, Central, ECB, U.S, HSBC, Futures, CFTC, Bank of Japan, Deutsche Bank, Reuters, Thomson Locations: Bank of Portugal, Carregado, Alenquer, Portugal, Rights ORLANDO , Florida, U.S

That is the biggest net short position since October 2011, and marks the fourth week in five that funds have increased their bet on weaker U.S. stocks. Reuters ImageA short position is essentially a wager that an asset's price will fall, and a long position is a bet it will rise. It has been a mixed bag with almost a fifth of the S&P 500 firms having reported. The S&P 500 has rebounded nearly 10% from the March banking shock lows, and if the options market is any guide, traders are sanguine about the near-term outlook. The VIX index of implied volatility - the Wall Street "fear index" - last week hit its lowest since November 2021.

☆ Citi's Scott Chronert shares his outlook for the S&P 500 in 2023
▼ + stars: | 2023-01-05 | by ( ) www.cnbc.com time to read: 1 min

Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via EmailCiti's Scott Chronert shares his outlook for the S&P 500 in 2023Citi's U.S. Equity Strategist Scott Chronert discusses how the S&P 500 may perform this year as a recession looms, and his expectations for the earnings season.

Could we be at that point for major stocks and bonds markets? chartSimilarly, can the market's Fed view get any more hawkish than a terminal rate of 5% and 10-year yield of 4%? Possibly, but that may require a catalyst not baked into current forecasts - and recession next year is pretty much the consensus view. Citi's U.S. and G10 economic surprises indexes are the highest since May, and the global surprises index on Friday crept up to its highest since June. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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