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Commodity Market Higher In August, Driven By Supply-Side Concerns

Commodity performance was positive in August, supported by gains in precious metals and petroleum products.

Nelson Louie, Global Head of Commodities in Credit Suisse’s Asset Management division, said, “Commodities continued to increase in August, driven higher by precious metals and petroleum products. Base metals traded broadly sideways, with soft demand readings outweighing potential tailwinds from further quantitative easing. Policy implementations and developments in Europe are likely to remain a key concern. Industrial production growth in China has continued to disappoint, and is also likely to continue to weigh on sentiment until signs of improvement emerge.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “Recent comments by the head of the US Federal Reserve and the European Central Bank, along with still wavering economic recoveries in much of the world, suggest further monetary easing measures may be likely. However, inflation expectations remain anchored near historic levels which may lead to inflation overshooting expectations if economic activity begins to pick up more robustly than expected. Commodities have historically tended to outperform during periods of higher than expected inflation. We believe investors will continue to benefit from the long-term diversification benefits that commodities provide.”

The Dow Jones-UBS Commodity Index Total Return was up by 1.30% in August. Overall, 12 out of 20 index constituents posted positive returns. Precious Metals was the best performing sector, up 6.22%, amid increased expectations for the launch of another round of quantitative easing. Energy increased, gaining 1.39%, led by refined petroleum products. Crude Oil was also higher, supported by reduced OPEC production and strong growth in emerging market demand. Agriculture was relatively unchanged, up 0.52%, due to mixed performance from sector constituents. Cotton was higher as China continued to turn to US exports to meet textile mill demand and build inventory levels. 2012 cotton imports through July were more than double their level for the same period in 2011. Soybeans and Soybean Oil were also higher due to larger than expected US exports. Coffee decreased as favorable weather in Brazil led to increased confidence in the 2012-13 coffee harvest, which is now over 80% complete. The Industrial Metals sector was also relatively unchanged, up 0.28%. The latest Chinese manufacturing data again disappointed, weighing on demand expectations. Livestock decreased 1.81% for the month, led lower by Lean Hogs despite the USDA’s promise to purchase up to $100 million of pork in an effort to support the farm community.

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 18 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.
As of August 31, 2012 the team managed approximately USD 10.9 billion in assets globally.