CTAs long equities, dollar and gold heading into US elections- BofA

Commodity trading advisors are long on U.S. stocks, the dollar, and gold going into the upcoming presidential elections, BofA said in a note, while positioning in U.S. Treasuries was largely short.

BofA said that CTA positioning remained elevated in U.S. equities among trend followers, and they were likely to be sellers this week, especially after the S&P 500 clocked a sharp loss last week. 

BofA noted that gamma- a measure of price changes in options relative to the underlying asset- was short on the S&P 500, and was likely to grow shorter if equities declined further in the coming days.

CTAs were seen largely buying into the dollar and gold ahead of the U.S. presidential election, with safe haven demand remaining high in the face of a tight race between Donald Trump and Kamala Harris. 

Among other commodities, BofA said trend followers were likely to increase short positions on oil and cut back long positions on copper . 

Recent increases in Treasury yields indicated that positioning was largely short treasuries across the curve, BofA said. 

“While we still believe that long term UST futures trends are significantly more bullish than short term trends, it is reasonable that most actual CTAs have now at least stopped out of their long positions if they are not already short,” BofA analysts wrote in a note. 

Treasury yields had shot up in recent weeks amid growing bets that the Federal Reserve will cut interest rates at a slower pace in the coming months. The central bank is widely expected to cut rates by 25 basis points this week after a 50 bps cut in September. 

Yields were also buoyed by dollar demand, along with some speculation over a Trump victory in the upcoming elections. Trump’s policies are expected to be inflationary, pushing up interest rates in the coming years. 

Source: Investing.com