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Commodity Market Increased in August Amid Improved Macroeconomic Environment and Increased Geopolitical Risk
Nelson Louie, Global Head of Commodities in Credit Suisse’s Asset Management business, said, “Chinese growth may have stabilized over the period. Commodities are likely to benefit from improving Chinese growth momentum, as it may be supportive of increased demand. At the same time, mixed US economic data and sharply declining emerging market currencies and securities have clouded the already uncertain outlook regarding the possibility of a Federal Reserve tightening in September. Regardless of whether the Federal Reserve tapers or not in September, it seems unambiguous that the Federal Reserve is going to err on the side of being overly easy with its policies. This may increase the risk of inflation overshooting expectations, especially should economic growth materialize stronger than is currently expected.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “In the near term, the increase in geopolitical risk in the Middle East has also been substantial. This has the capacity to lead to further oil supply disruptions, through further destabilizing production and transportation of crude oil from nearby key producers. Increased geopolitical risk has also been a key driver in the gold rebound as investors move into safe havens. While a final decision on military intervention in Syria has been delayed in the US, recent events highlight the diversification benefits that commodities can add to a diversified portfolio.“
The Dow Jones-UBS Commodity Index Total Return increased 3.40% in August. Overall, 14 out of 22 index constituents posted positive returns. Precious Metals increased the most, up 9.33%, with both Gold and Silver higher. Gold increased after new home sales data were lower than forecasted, reducing expectations that the US Federal Reserve will scale back its economic stimulus program on the coattails of a strengthening economy. Energy gained 3.10%, led by Brent Crude Oil, due to ongoing debate over military intervention in Syria and reduced exports out of Iraq and Libya. Expectations remain elevated that the US may coordinate an attack in response to the use of chemical weapons against civilians in Syria. However, concerns eased slightly after Britain announced it would not join in any military action. Livestock increased 2.59%, led by Lean Hogs, amid rising feed costs and ongoing concerns over increased illnesses shrinking supply. A heat wave in many areas of the US towards the end of the month also added to concerns that hog supplies could be curbed. Agriculture ended the month higher, up 2.37%, with Soybeans and soybean products positive, and the rest of the sector constituents negative. Soybeans were more susceptible to yield damage due to the hot and dry weather in the US Midwest due to the delayed planting progress earlier in the year. Industrial Metals gained 1.74%, led by Copper, due to encouraging macroeconomic data from China.
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 31st, 2013 the team managed approximately USD 11.6 billion in assets globally.