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Commodities Declined Amid Shifting Supply and Demand Expectations
The Bloomberg Commodity Index Total Return performance was lower for the month, with 15 out of 22 Index constituents posting losses.
Credit Suisse Asset Management observed the following:
- Livestock declined 7.07%, led lower by Live Cattle, after the USDA reported higher beef production in March compared to the year prior as well as higher-than-expected feedlot placements in February, increasing supply expectations.
- Industrial Metals decreased 4.36% as US-imposed tariffs on steel and aluminum products along with a cooling Chinese housing market reduced demand expectations for base metals.
- Agriculture was 2.81% lower. Kansas City Wheat and Chicago Wheat both fell as much needed rainfall in the US Grain Belt relieved parched crops, improving yield expectations.
- Precious Metals increased 0.15%, led higher by Gold, after trade tensions between the US and China rose, raising safe haven demand for the metal.
- Energy rose 4.87%, led higher by crude oil and petroleum products, as new appointments by the US Administration increased the odds of Iran and Venezuela facing more US sanctions, potentially reducing the amount of crude oil supply in circulation.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "March began with the US government announcing across-the-board tariffs on steel and aluminum product imports, upsetting many countries, including long-standing trading partners such as the European Union. Though the US administration eventually made exceptions, retaliatory actions by targeted nations are largely expected. China already announced plans to impose tariffs on US pork, with expectations of more levies to come. While the trade actions intend to safeguard their respective nations, the escalating tensions may have the unintended effect of hurting specific producers, such as US soybean farmers. Further escalation of trade tensions may have the potential to affect growth."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "In March, on the back of a stronger US economy, the Fed raised rates and also indicated it may increase the pace of interest rate hikes to prevent the economy from overheating as signs of inflation continue to emerge. The ECB announced plans to begin to tighten its monetary policies on the back of improving labor markets and strengthening economic growth. As China and Japan's core CPI readings for February reached new year-over-year highs, increasing industrial output may serve as a sign of future inflationary pressures. Increasing coordination in global growth as well as rising inflationary pressures may be more supportive for commodities as an asset class."
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy is managed by a team with over 32 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.
As of March 31, 2018, the Team managed approximately USD 8.8 billion in assets globally.