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Commodities Decreased on Lower Demand Expectations for Metals and Increased Supply Prospects for Crude Oil
The Bloomberg Commodity Index Total Return was lower for the month, with 15 out of 22 constituents posting losses.
Credit Suisse Asset Management observed the following:
- Industrial Metals declined 5.52% as the ongoing trade war between the US and China reduced industrial demand expectations as well as overall global growth expectations.
- Energy decreased 5.51% as supply expectations for crude oil and petroleum products increased out of Saudi Arabia, Russia and the US, while demand prospects worsened due to growing global macroeconomic concerns.
- Livestock was 0.69% lower, led down by Live Cattle, after the US Dollar strengthened versus other major world currencies, making US beef less competitive in international markets.
- Precious Metals gained 0.77% as continued trade issues between the US and China, and renewed European fiscal and growth concerns, increased the safe haven demand for Gold, more than offsetting weakness from a stronger US Dollar.
- Agriculture rose 2.17%, led higher by Sugar and Coffee, as the Brazilian Real strengthened versus the US Dollar, discouraging local farmers from selling down their inventories priced in US Dollars and subsequently reducing supply expectations.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Buyers of Iranian crude oil have already cut imports to avoid political or economic consequences before sanctions on Iran resumed on November 5th. Sanctions compliance from China and India, the two largest importers of crude oil from Iran, will be important, with China being one of the bigger uncertainties given the ongoing trade dispute between it and the United States. It is expected that the US will allow some buyers to continue to import crude oil and petroleum products from Iran, but only if they show that they have cut imports from previous levels. The cut threshold required for the US to provide the waivers is a key unknown, with meaningful implications for how many additional barrels are needed from other producers to meet global demand. In addition, the outcome of the US midterm elections may alter the US administration’s stance against Saudi Arabia. Lately, Saudi Arabia has been cooperating with US interests by increasing its supply of crude oil, potentially helping to keep prices from going higher."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "During October, the International Monetary Fund reduced its global growth forecast for this year and next, which has reduced base metals demand expectations. An important driver of base metal supplies may be the evolution of China’s environmental policies, which last winter successfully cut air pollution while reducing aluminum and zinc production. It’s expected that Chinese pollution policies this winter will target producers with less environmentally friendly processes to reduce production. In addition, the Chinese government appears to be committed to supporting its housing and manufacturing industries, which may be supportive of base metals demand, by announcing additional economic stimulus measures after multiple Chinese economic indicators showed weakness in recent months. Meanwhile, the current strength of the US economy may be supportive of cyclical commodities demand. In addition, wage growth continued to put pressure on the US Federal Reserve to continue to raise interest rates and finally normalize exceptionally loose monetary policies. Risk remains that many major central banks are behind in their tightening efforts, attempting to not impede economic growth. This may increase the risk that inflation may overshoot expectations, especially at this point in the economic cycle."
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 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 October 31, 2018, the Team managed approximately USD 8.6 billion in assets globally.