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Spaces are limited, so those who act slowly may miss out. Let us come together for this sustainable appointment! [Click to register] UBS's latest report shows that as global stock markets pulled back, commodity trading advisor (CTA) strategy funds rebuilt long US dollar positions, with related purchases totaling about $330 billion, while also reducing exposure to European and emerging market equities.
UBS expects some European stock markets to still face further selling pressure, with the French market especially vulnerable. Model simulations show that there is currently limited room for further trend-following buying in equities, and if the market continues to decline, it could trigger larger-scale programmatic selling.
CTA funds cut European and emerging market stocks, with France facing higher selling risk
UBS noted that CTA funds have recently mainly reduced holdings in European and emerging market equities, while markets with a higher share of US and Asian technology stocks have been relatively stable. According to the bank's model simulations, potential new trend-following buying in the global stock market is currently fairly limited, but if major stock indices continue to fall, CTA strategies may further expand selling.
UBS expects some European markets to continue facing pressure to reduce positions, with the French stock market especially worth watching. On the bond side, CTA funds currently still hold large short duration positions, meaning they are broadly betting on falling bond prices and rising yields. UBS pointed out that related trend indicators have approached extreme bearish levels.
Long dollar positions have largely been rebuilt, and foreign exchange flows may slow over the next two weeks
In the foreign exchange market, UBS estimates that CTA funds have recently accumulated about $330 billion in long US dollar positions, but the main position adjustments have already been completed, and it expects relatively limited new trading flows over the next two weeks. The bank believes there are fairly clear short-covering opportunities in Asian currency markets, and some currencies that had previously been sold short may gain support as investors close positions.
In addition, UBS expects positions related to the Chinese yuan and the Colombian peso may still increase further.
Commodities remain bullish on energy, bearish on precious metals and some industrial metals
In commodities, UBS's CTA trend signals remain bullish on energy, while precious metals overall maintain bearish signals. Industrial metals are expected to continue facing selling, especially tin and aluminum. At the same time, selective short-covering trades may appear in lead, palladium, and platinum.
UBS's position analysis shows that CTA funds are showing a trend of increasing US dollar holdings, reducing some equity holdings, and shorting bond duration. During stock market declines, this type of strategy, which adjusts positions based on price trends, may further amplify market volatility, with European stock markets especially facing potential additional selling pressure.
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