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Commodities Gained on Fed Rate Cut and Improving Trade Relations
The Bloomberg Commodity Index Total Return was higher for the month, with 19 of 23 constituents posting gains.
Credit Suisse Asset Management observed the following:
- Precious Metals increased 3.79%, led higher by Silver, as cooling US economic data encouraged the US Fed to cut the Federal Funds Rate and increased investment appetite for other stores of wealth.
- Industrial Metals gained 1.78%. Zinc rose the most after LME inventories continued to decline while several smelters and refineries were taken offline due to production issues, suggesting supply tightness. Optimism surrounding upcoming US-China trade talks also brightened the demand prospects for base metals broadly.
- Agriculture was up 1.74%, led higher by Cotton, after progress towards a partial trade deal between the US and China boosted US export estimates, in addition to other US agricultural goods.
- Energy rose 1.61%, with Gasoline leading the sector higher, after attacks on Saudi Arabia’s crude processing infrastructure in September reduced the supply of petroleum products more than it did for crude oil, helping Gasoline to rise.
- Livestock returned 0.71%. Live Cattle rose on tightening fundamentals. US beef export expectations were raised following a US and Japan trade agreement while an early winter storm in the US Midwest threatened cattle weight gains.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "The US and China neared a partial trade agreement that would at minimum address the sales of US agricultural goods to the Chinese market. Any meaningful progress in the US-China trade war may help to improve commodities demand expectations and the global growth outlook. In Chile, public protests have already disrupted mining operations and caused transportation delays. Prolonged unrest may hinder copper production into 2020. Across the Pacific, the Indonesian government temporarily restricted the flow of high-grade nickel ore exports ahead of the revised January 2020 export ban deadline. Indonesia’s policy towards nickel production and exports has varied widely over the past years, so potential uncertainty remains for further adjustments to these rules."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "Leading economic indicators for large economies continued to show weakness. The US and the Eurozone both suffered lower manufacturing PMI readings for September. Meanwhile, China’s PMI readings varied, though all were near contraction territory. China’s GDP growth for the third quarter of 2019 fell to 6%, the lowest quarterly reading since 1993. Until trade frictions among the largest economies ease, central banks are likely to continue to act to support economic activity, in an effort to help counteract any impediments to 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 October 31, 2019, the Team managed approximately USD 6.5 billion in assets globally.