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Commodity Performance Was Mixed In April, Fundamentals Remain Supportive

Commodity performance was mixed in April, despite improving macroeconomic backdrop.

Nelson Louie, Global Head of Commodities in Credit Suisse’s Asset Management division, said, “Over the past month, concerns surrounding China have begun to lift and have been replaced with renewed anxieties over the outlook for Europe, as well as apprehensions that the US recovery is losing steam. However, prospects for global growth this year may be significantly more positive than at this time last year. Leading economic indicators suggest we may be in store for more balanced growth between developed and emerging markets. Stronger than expected global growth would be especially supportive of economically sensitive commodities.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “As expected, the Federal Open Market Committee decided to keep policy unchanged in April, but reaffirmed its interest rate guidance. With inflation expectations remaining well anchored, the likelihood of inflation overshooting expectations remains elevated. Monthly IMF data demonstrated that central banks were active buyers of gold in March as they sought diversification away from US Dollar denominated reserves. Commodities have historically tended to outperform during periods of higher than expected inflation. We continue to believe investors will benefit from the inflation protection and diversification benefits of holding broad based commodities exposure within a portfolio of traditional assets.”

The Dow Jones-UBS Commodity Index Total Return was down by 0.42% in April. Overall, 14 out of 20 index constituents decreased in value. Livestock was the worst performing sector, down 2.99% for the month. Weaker than expected domestic demand outweighed continued strong exports, further pressuring Lean Hogs. Precious Metals decreased, down 1.46%, led by Silver. Gold decreased slightly as Indian physical demand has been subdued amid a depreciating rupee and higher import duties. Agriculture was also slightly lower, losing 0.34% for the month. Grains were lower following USDA planting data, which showed 17% of Corn and 37% of Spring Wheat crops were planted compared to 5% for each at this time last year. The rapid planting progress in the US can be attributed to warm weather and the early start to the spring planting season. Energy was relatively unchanged, down 0.08%. Natural Gas ended the month in positive territory after the Department of Energy revised downwards its previous four weekly injection estimates, helping to alleviate some of the pressure on bloated inventories. Industrial Metals increased slightly, up 0.31%. Copper was supported by South Korea's announcement that its central bank will buy $300 million of Chinese Copper stocks over the next three months. Meanwhile, Copper inventories in London Metal Exchange-registered warehouses fell to their lowest levels since November 2008. Shanghai Futures Exchange deliverable stocks also fell after building for most of the first quarter. However, Copper ended the month down 0.08% after falling in the first half of the month on macro-economic concerns.

The Credit Suisse Total Commodity Return Strategy group periodically produces updates on relevant industry topics. For a copy of the team’s white paper, “Commodities Outlook: Increased Volatility, Increase Opportunity?” , please contact your Credit Suisse Relationship Manager.

About the Credit Suisse Total Commodity Return Strategy
Credit Suisse’s Total Commodity Return Strategy has been managed for 17 years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS 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.