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Commodities Declined on Crop Surpluses and Low Base Metals Demand

Commodities declined as beneficial weather increased supply expectations for crops and as the trade conflict between the US and China continued to weigh on base metals demand expectations.

The Bloomberg Commodity Index Total Return declined for the month, with 18 out of 23 constituents posting losses.

Credit Suisse Asset Management observed the following:

  • Industrial Metals decreased 3.42% as trade negotiations between the US and China continued without a clear trade deal in sight. This development, paired with a reduced global growth outlook by the International Monetary Fund, reduced base metals demand expectations broadly.
  • Agriculture declined 3.34%, led lower by Wheat, after strong crop yield prospects in Russia, the EU, and the US increased global supply expectations.
  • Livestock fell 2.33%, led down by Live Cattle, after an USDA report revealed higher-than-expected feedlot placements during March, increasing supply expectations.
  • Precious Metals decreased 0.88% amid positive US economic data, which weakened the attractiveness of both Gold and Silver as alternative stores of wealth.
  • Energy gained 4.29%, led higher by Crude Oil and petroleum products, as supplies continued to tighten amid ongoing US sanctions on Iran and lower production out of Venezuela.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “Negotiations continued towards a trade agreement between the US and China as additional meetings between their delegations were announced near month end. Any near-term deal would be advantageous to various industries dependent on international market demand and may improve the global growth outlook, encouraging more demand for most commodities. In the meantime, the African swine fever outbreak in Asia has already forced China to purchase more US pork products to meet domestic demand. If conditions worsen, China may have to quickly ramp up US pork imports along with commodities used as feedstock. Elsewhere, the US announced it would allow the Iranian oil import waivers to expire in May. How Saudi Arabia and its allies react will be key in terms of how oil prices respond in the near term. After having increased production too quickly at the end of 2018, when sanctions were re-imposed on Iran, key parties will likely want to be more patient. However, they will also be under pressure to increase production should prices rise sharply.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: “First quarter GDP readings for the US, European Union, and China surprised to the upside, though other economic indicators for all regions remained mixed. Within the US, markets are pricing in a benign inflation environment, running near 2% for the foreseeable future. The Fed has signaled it will maintain its patient stance before taking meaningful action, with the agency under significant pressure to keep monetary policy accommodative, though higher-than-expected inflation could force the Fed to change policy plans. China’s manufacturing PMI fell in April, while better-than-expected Industrial Production data was largely attributed to looser credit standards and other stimulus measures enacted by the Chinese government earlier in the year. In the Eurozone, Germany faced a slowdown in its manufacturing sector while France’s stimulus measures may have helped the pace of new business investments. Comments from the ECB indicated the potential for further weakness in the Eurozone’s economy, though it highlighted the availability of other tools to attempt to support growth. Central banks appear to remain at the ready to enact more accommodative and nonconventional policies.”

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse’s Total Commodity Return Strategy is managed by a team with over 35 years of combined 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 April 30, 2019, the Team managed approximately USD 7.1 billion in assets globally.