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Commodities Gained as the Risk of Supply Disruptions Increased
The Bloomberg Commodity Index Total Return performance was higher for the month, with 15 out of 22 Index constituents posting gains.
Credit Suisse Asset Management observed the following:
- Energy increased 5.02%, led higher by Brent Crude Oil. Heightened expectations that the US would remove itself from the Iran sanctions deal increased the potential for limited Iranian exports in the near future.
- Industrial Metals gained 3.52%. Aluminum rose the most after US sanctions against Rusal, one of the world's largest aluminum producers, reduced supply expectations.
- Agriculture was 1.44% higher. Kansas City Wheat and Chicago Wheat both increased after the USDA revealed worse-than-expected US wheat conditions due to dry and freezing conditions this past winter.
- Livestock was up 0.42%, led higher by Live Cattle, after the USDA reported US feedlot placements in March declined 9% from the same time last year, indicating a slowdown in cattle herd expansion.
- Precious Metals decreased 0.23% after North Korea signaled willingness to allow the US to inspect its nuclear test site, decreasing the geopolitical risk premium and the demand for Gold as a safe haven asset, as did a stronger US Dollar.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Over a month after the US first announced plans for tariffs, details remain unclear. The US has since postponed duties on some countries while applying quotas on steel and aluminum products for others. There remains uncertainty on how the long-term outcome may impact producers of the affected items. An outright trade war could be inflationary as supply shocks may reverberate into associated industries. This may result in delays in business decisions until there is more clarity. China has already proposed some retaliatory trade restrictions against the US' agricultural markets for meats and grains. Should China shift its purchases from the US to elsewhere, those new suppliers may have to stop selling to other export markets, leaving potential additional demand sources for US producers."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "Signs of continued synchronized global growth and inflationary pressures remain apparent across major economies. Inflation readings within the US and the Eurozone for March both showed growth compared to a year ago. In particular, the US' fiscal expansion may be stimulating for household and infrastructure spending, which may lift prices for goods more quickly. And while China's CPI reading for March came in below expectations, the country's first quarter growth came in higher-than-expected at 6.8%, partially due to strong exports. As markets anticipate inflation to continue its gradual yet upward rise this year, central banks may provide more hawkish guidance to prevent overheating economies. In the US, expectations were for two or more rate hikes for 2018, as of the end of April."
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy is managed by a team with over 32 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 April 30, 2018, the Team managed approximately USD 9.0 billion in assets globally.