UBS' latest report shows that as global stock markets experience a correction, commodity trading advisors ( CTA ) strategy funds have re-established long positions in the US dollar, with related buying volumes amounting to approximately $330 billion. At the same time, they have reduced their exposure to European and emerging market stocks. UBS expects that some European stock markets will still face further selling pressure, with the French market being particularly vulnerable. Model simulations indicate that there is limited room for further trend-based buying in current stock markets. If markets continue to decline, it could trigger a larger scale of programmed selling.
CTA Reduces Holdings in European and Emerging Market Stocks; France Faces Higher Risk of Selling Off
UBS noted that the CTA fund has recently significantly reduced its holdings in European and emerging market stocks, while markets with a higher proportion of US and Asian tech stocks have remained relatively stable.
According to the simulation of this model, the potential new trend-based buying in the global stock market is currently limited. However, if the major stock indices continue to decline, the CTA strategy may further expand the scale of selling.
UBS expects that some European markets will still face pressure to reduce positions, with the French stock market being of particular concern.
In terms of bonds, CTA still holds a large number of long-term short positions, which means they are betting in general that bond prices will fall and yields will rise. UBS pointed out that the relevant trend indicators have approached extreme bearish levels.
US dollar long positions have largely been rebuilt, and foreign exchange capital flows may slow down in the coming two weeks.
In the foreign exchange market, UBS estimates that CTA has recently accumulated a long position of approximately $330 billion in US dollars. However, the main position adjustments have been completed, and it is expected that the volume of new trades in the coming two weeks will be relatively limited.
This view holds that there are relatively clear opportunities for short covering in the Asian currency market, and some currencies that were previously shorted may see support due to investors closing their positions.
In addition, UBS expects that positions related to the RMB and the Colombian peso may further increase.
Continue to be bullish on commodities, bearish on precious metals and some industrial metals.
In terms of commodities, UBS' CTA trend signal remains bullish on energy, while the overall signal for precious metals remains bearish.
Industrial metals are expected to continue to face selling pressure, especially for tin and aluminum.
At the same time, there may be selective short covering transactions for lead, palladium, and platinum.
UBS' position analysis this time shows that CTA funds are showing a trend of increasing holdings in US dollars, reducing holdings in certain stocks, and shorting bond durations. During periods of declining stock markets, such strategies that adjust positions based on price trends may further amplify market volatility, with European stock markets particularly facing potential additional selling pressure.
