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Commodities Declined on Renewed Global Growth Uncertainty
The Bloomberg Commodity Index Total Return was lower for the month, with 20 of 23 constituents posting losses.
Credit Suisse Asset Management observed the following:
- Energy declined 14.78%, led lower by Crude Oil and petroleum products, as improved US-Iran relations reduced crude oil supply risks in the Middle East while the coronavirus outbreak disrupted manufacturing and trade activity within China, and raised concerns of supply chain disruptions.
- Livestock decreased 10.96%, weighed down by Lean Hogs, after the USDA reported healthy pork production figures and lower-than-anticipated US pork export sales in January despite the US and China's signing of a Phase One trade deal mid-month.
- Industrial Metals declined 7.32% as growing cases of the coronavirus worldwide spurred fears of lower global economic activity, decreasing base metal demand expectations.
- Agriculture fell 5.33%, led lower by Coffee, as favorable weather conditions in key production regions for Brazilian Arabica coffee raised supply forecasts, leading to estimates for a record harvest in 2020.
- Precious Metals increased 3.22% as a new wave of uncertainty surrounding China's economy and the ability for global growth expectations to improve supported safe haven demand for Gold and Silver.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Though the US and China signed a partial trade agreement on January 15th, details surrounding when and how much trade will resume remain unclear. However, the concern of food security amid China's battle with African swine fever and a new outbreak of an avian influenza may accelerate China's imports of US soybeans, wheat and pork. Elsewhere, eastern Africa and parts of South East Asia face a growing locust problem, which may increase the region's demand for agricultural goods and animal protein from abroad as well. The coronavirus outbreak has weighed on growth and crude oil demand expectations as industrial and travel activity in China remain hindered. OPEC and its partners may decide to cut oil output further, though their impact depends on how much demand is lost as well as the details on the timing and types of any cuts. Meanwhile, the potential for supply shocks in the Middle East remains as the US continues to enforce its sanctions on Iran, and most of Libya's oil exports have been disrupted due to continued internal conflicts."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "The US Federal Reserve kept short-term interest rates steady after its latest meeting in January, noting "cautious optimism" towards global growth expectations. However, there remains uncertainty on how the coronavirus outbreak will impact the global economy and if it will limit progress made with the Phase One trade deal as China's economy is weakened and constrained. The People's Bank of China already announced plans to inject liquidity into its markets to make up for the economic shortfall caused by the contagious virus. These actions demonstrate how carefully central banks are monitoring their respective economies and their willingness to act to support long-term growth."
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 January 31, 2020, the Team managed approximately USD 6.4 billion in assets globally.