By Credit Suisse AG, Special for USDR
Commodities declined in June amid increasing softs and crude supplies, according to Credit Suisse Asset Management.
The Bloomberg Commodity Index Total Return performance was negative for the month, with 12 out of 22 Index constituents posting losses.
Credit Suisse Asset Management observed the following:
- Energy decreased 3.74%. Crude Oil and petroleum products declined amid increased production out of Nigeriaand Libya.
- Precious Metals dropped 3.12%, after US Federal Reserve (Fed) Chair Janet Yellen’s latest comments increased expectations of a more aggressive shrinking of the Fed’s balance sheet.
- Livestock declined 1.88%, led lower by Live Cattle, after the USDA reported beef production continued to come in above the five year average.
- Agriculture increased 3.08% as hot and dry weather in the US Northern Plains threatened the quality of the upcoming US spring wheat crop.
- Industrial Metals gained 3.37% after markets received assurance that the Chinese central bank remains committed to maintaining economic stability while tightening credit conditions.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “Recoveries of major economies seem to be moving in the same direction. Reported manufacturing activity in the US and Europe remained in expansion territory, while China returned to a slight expansion in June, which may be supportive of base metals demand. Consumer confidence levels in the US and parts of the Eurozone have also increased. Despite these positive economic indicators, central banks continued to be accommodative. Recently, the US Fed expressed that any reduction to the federal balance sheet will be deliberately slow. In addition, the Chinese central bank indicated it will continue to attempt to support its economy as it tightens credit conditions and shifts towards a consumer-driven economy, easing concerns surrounding the country’s pace of economic growth.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: “Low energy prices have served as a drag on inflation. Markets now are waiting to see how sustainable newly restored production out of Libya and Nigeria will be, along with if other OPEC members will act to offset this increase in supply. Industrial Metals continued to be influenced by labor disputes as well as environmental-related restrictions on the production of certain metals. In Agriculture, weather-related risks, or lack thereof, remain the largest driver of returns for grains and softs. As the Brazilian meat scandal and corruption probe widens, the US may take up more beef market share due to it being viewed as a safe supplier. Lastly, the demand for Precious Metals continues to be influenced by the strength of the US Dollar and safe haven demand. The trend of higher interest rates may hurt precious metals demand, unless offset by greater inflation, while safe haven demand is likely to remain intact.”
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse’s Total Commodity Return Strategy is managed by a team with over 30 years of experience, and seeks to outperform the return of a commodities index, such as the Bloomberg Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:
- Spot Return: price return on specified commodity futures contracts;
- Roll Yield: impact due to migration of futures positions from near to far contracts; and
- Collateral Yield: return earned on collateral for the futures.
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Certain risks relating to investing in Commodities and Commodity-Linked Investments: Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative’s original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor’s portfolio management strategy.
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