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Commodities Decreased on Dampened Global Growth Expectations

Commodities decreased as a lower global growth outlook reduced the demand expectations for crude oil and base metals.

The Bloomberg Commodity Index Total Return decreased for the month, with 19 out of 22 constituents posting losses.

Credit Suisse Asset Management observed the following:

  • Energy declined 18.74%, led lower by Natural Gas, as warmer-than-expected temperatures within the US reduced heating demand amid seasonally low inventory levels.
  • Industrial Metals decreased 5.12% as skepticism surrounding the ability to timely renegotiate the terms of a new agreement between the US and China remained by the end of December, keeping demand expectations for base metals low.
  • Agriculture fell 2.39%, led down by Cotton, due to reduced consumption forecasts from Asia, strong production in China with the help of government subsidies and low US export demand.
  • Livestock eased 0.89%, led down by Lean Hogs, after the USDA reported strong US hog production and higher-than-expected frozen pork inventories.
  • Precious Metals increased 5.75% as weakness in global equity markets along with a partial US government shutdown increased safe haven demand for Gold and Silver, along with the outlook for less aggressive monetary tightening.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “After the Group of 20 meeting in Argentina, the US and China began a three-month break from enacting additional tariffs and to resume trade negotiations. If the two nations can make significant compromises in the coming months, then this may be supportive of global economic growth. 2019 may also bring new risks to crude oil supplies. Nigeria and Libya will hold major elections this year and the potential for civil unrest due to potential political transitions may disrupt oil production as it has in the past. In addition, output reductions from OPEC and its partners, including a reduction of oil exports to the US may alter the supply/demand balance. The market also awaits data to assess compliance by those countries who received Iranian oil import waivers from the US. If it is deemed that these countries failed to adhere to the stipulations surrounding the sanctions, then the US may further tighten restrictions around Iranian oil exports to these countries.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: “As global growth expectations weakened over the past few months, central banks may implement additional policy measures in support of economic progression. Trade tensions with the US have pressured China’s economy as its manufacturing activity contracted in December. In response, the Chinese government intends to enact more fiscal measures to support its housing and manufacturing industries. The ECB announced it will maintain its key interest rate below 0% at least through mid-2019 amid a slowing economy. And, the US Fed seemed to suggest it will follow a slower pace of rate hikes in 2019 in light of uncertainty regarding future global growth. However, US labor and wage data appear to remain strong. The cautious actions exhibited by central banks as the global economy shifts from monetary easing to a tightening cycle may be supportive of global economic activity as well as commodity demand.”

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 December 31, 2018, the Team managed approximately USD 7.6 billion in assets globally.