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Commodities Declined on Weakening Demand Expectations
The Bloomberg Commodity Index Total Return performance was negative for the month, with 11 out of 22 Index constituents posting losses.
Credit Suisse Asset Management observed the following:
- Livestock decreased 5.91%, led lower by Lean Hogs, as domestic and foreign demand weakened.
- Industrial Metals dropped 4.15% amid concerns about China's pace of economic growth, which lowered demand expectations for all base metals
- Precious Metals declined 0.27% as weaker industrial demand expectations weighed on Silver.
- Agriculture increased 0.40%, led higher by Cotton, after the USDA reported higher-than-expected US cotton exports in a report released on November 16th, increasing demand expectations.
- Energy gained 2.32% as crude oil and petroleum products rose amid increased political uncertainty in Saudi Arabia and further signs of strain in Venezuela, which may curb production and exports of crude oil.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Base metal supplies continued to be affected by production restrictions in Asia amid strong demand. However, the sector may face some headwinds as China adjusts policies to prevent its housing market from overheating. Within Energy, Natural Gas prices continued to swing on changing forecasts. As pipeline projects remain incomplete, there is the potential for bottlenecks to occur where gas production is not able to reach demand. In that scenario, a colder-than-expected winter could drawdown immediate inventories. Elsewhere, OPEC reached a decision to extend the oil production cuts through the end of 2018, with reviews scheduled throughout the year. The group remains focused on bringing inventories down to five-year average levels. The main risk to this strategy is the potential response from US producers who may grow production at higher prices. One difference now, however, is that shale producers may be exercising more discipline in growing output."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "There continues to be evidence of moderate strengthening in growth globally. Within the US, consumer spending and confidence levels remained elevated. In addition, unemployment reached a new low in October, though wage growth remained modest. China reported growth which exceeded expectations for the first nine months of the year due to strong infrastructure spending. Inflation gradually increased in the Eurozone for November, due to improved labor conditions and higher energy prices. Despite numerous positive economic indicators, inflationary pressures remain muted as businesses remained cautious on borrowing capital to finance capital expenditures. Markets are waiting to see if a US tax bill will be passed, which could be supportive of future business growth, and consequently, inflation. Offsetting this potential fiscal inflationary source will be tightening monetary policy. Markets so far assume the process of central banks' policy adjustments will be orderly. Even a modest acceleration in the global economy from here could potentially benefit commodity prices."
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy is managed by a team with over 30 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 November 30, 2017, the Team managed approximately USD 8.5 billion in assets globally.