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Commodities Declined on Loosening Supply Fundamentals
The Bloomberg Commodity Index Total Return was lower for the month, with 11 of 23 constituents posting losses.
Credit Suisse Asset Management observed the following:
- Industrial Metals declined 4.90%, led lower by Nickel, after both the London Metal Exchange and Shanghai Futures Exchange reported higher inventory levels for the month of October.
- Precious Metals decreased 3.80% on improved risk appetite following positive US economic readings, reducing the probability of another US Federal Reserve interest rate cut.
- Energy fell 2.57%, weighed down by Natural Gas, amid lower weather-related demand as temperatures in November as well as forecasts for early December were warmer than expected.
- Livestock fell 2.08%, led lower by Lean Hogs, after the USDA reported the largest weekly US pork production volume in its reporting history for the week ending November 16th. Meanwhile, heightened skepticism of a partial US-China trade agreement decreased the odds for higher US pork exports to China in the coming future.
- Agriculture eased 0.45%. While Coffee and Wheat gained on supply risks, Soybeans and its byproducts fell as a lower Brazilian Real versus the US Dollar encouraged farmers to sell their inventories more rapidly, increasing supplies in circulation.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Financial risk appetite improved following some optimistic trade statements from the US and Chinese administrations, although the actual execution of a partial trade agreement remains elusive thus far. There is an incentive to have one by December 15th, which is when the latest round of US tariffs on Chinese goods is set to go into effect. Commodity prices may rise on improved demand and stronger global growth prospects if a trade agreement is in place. Future developments within the Middle East will be a key driver of energy prices. By month end, OPEC+ signaled it may extend its crude oil production cut agreement past the current March 2020 expiration date at their next meeting in early December. Meanwhile, civil unrest has been increasing in Iraq and Iran. So far, these events have not materially affected prices. If tensions were to escalate further within these oil-producing nations, it could potentially result in more upside price volatility."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "Despite the continuing US-China trade war, economic readings for both countries showed slight improvements. US GDP growth for the third quarter was revised higher to 2.1% while US New Homes Sales and Durable Goods Orders readings for October came in better than expected. Meanwhile, various manufacturing PMI readings for China were all above 50 for October, indicating growth, a reversal of previous contractionary readings. It may be that accommodative policies of both central banks have allowed their economies to stabilize, at least temporarily. Both countries continue to show commitment to attempting to prevent headwinds from slowing down growth within their respective borders."
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 November 30, 2019, the Team managed approximately USD 6.3 billion in assets globally.