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Commodities Gained on Strengthening Demand

Commodities gained in October on strengthening demand for most sectors, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was positive for the month, with 14 out of 22 Index constituents posting gains.

Credit Suisse Asset Management observed the following:

  • Livestock gained 10.57%. Lean Hogs and Live Cattle were both supported by strong domestic and export demand.
  • Industrial Metals rose 5.83%, led higher by Nickel, due to increased demand expectations for usage in electric car batteries.
  • Energy was 2.46% higher as crude oil and petroleum product inventory levels continued to decline. US domestic crude oil refining demand returned to above average seasonal levels, while volumes of crude exports rose to new highs.
  • Precious Metals decreased 0.71%, led lower by Gold. The US Dollar strengthened in October as the US Senate passed the 2018 fiscal year budget, which may pave a gateway to potential tax reform.
  • Agriculture declined 0.92%, pressured lower by Wheat, after the USDA reported larger-than-expected US production for the 2017 crop year and increased its forecasts for a global surplus.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Numerous weather events have had significant economic impacts to various countries so far this year. These shocks impacted key commodity producing regions, and weather continues to have the potential to significantly affect the supply fundamentals of energy and agricultural commodities. Thus far, expectations are for a relatively weak La Niña effect over the Pacific Ocean to occur before year end. However, if that were to strengthen, it could disrupt production for some crops while increasing natural gas heating demand in other parts of the region. Despite multiple hurricanes causing severe flooding and some infrastructure damage, forcing some local economies to come to temporary standstills, US third quarter GDP came in higher-than-expected at 3%. Consumer confidence in the US economy rose in October, as the University of Michigan's Index of Consumer Sentiment reached its highest level since 2004. In addition, the unemployment rate fell to 4.2% in September. These positive economic indicators continue to provide support for a probable rate hike in December."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "In Europe, tensions escalated between Catalonia's regional government and the Spanish national government. However, the Eurozone's economic recovery continued into the beginning of the fourth quarter. After the European Central Bank's latest meeting held late in October, ECB President Draghi announced that it will begin to reduce the monthly bond purchasing amount by half beginning in 2018, though he also stated he would continue the program longer-than-expected, highlighting that the ECB will continue to divert from US policy by remaining more dovish. This divergence of global central bank policies creates additional uncertainty and the potential to increase currency volatility. However, even as the US and some other central banks begin to tighten, they remain incredibly accommodative by historical standards, while the world's major economies are growing in a coordinated fashion. The potential for inflation risk remains, highlighting the benefit of holding commodities as a valuable hedge against unexpected inflation."

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 October 31, 2017, the Team managed approximately USD 8.5 billion in assets globally.