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Commodities Increased Following Improved Demand Expectations

Commodities increased following improved demand expectations for livestock and base metals as trade negotiations between the US and China seemingly made progress.

The Bloomberg Commodity Index Total Return was higher for the month, with 18 of 23 constituents posting gains.

Credit Suisse Asset Management observed the following:

  • Livestock increased 7.46%, led higher by Lean Hogs, after the US and China delayed another round of tariffs to encourage the progression of trade negotiations, improving US pork export demand prospects.
  • Agriculture gained 4.19%. Chicago Wheat increased as rising corn prices elevated wheat's appeal as a substitute in animal feed.
  • Energy rose 1.11% after the largest oil processing center in the world, located in Saudi Arabia, suffered from a drone attack on September 15th, raising concerns of reduced gasoline, gas oil and ultra-low sulfur diesel output.
  • Industrial Metals returned 0.51% for the period. Zinc rose on improved demand expectations amid easing trade tensions while LME inventory levels fell to a five-month low.
  • Precious Metals declined 4.40% following reduced safe haven demand for both Silver and Gold as international relations among US, China and Iran appeared to not regress during the month.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Trade tensions between the US and China eased in September as both sides delayed additional rounds of tariffs before meeting in October. The US House of Representatives' impeachment inquiry may either accelerate or complicate the progression of negotiations for this trade deal as well as others. Finalized trade accords would be supportive of commodities demand across multiple sectors. After a drone attack at a major oil field in Saudi Arabia, there still remains uncertainty as to how much inventories will draw down and whether Saudi Arabia will be able to meet its targeted schedule of restoring operations. Despite the attack, the US granted Iran entry into the country in order to attend the United Nations General Assembly, a possible sign of goodwill towards a deal that would allow Iran to resume crude oil exports. Aside from heightened tensions between Iran and Saudi Arabia, geopolitical risks remain among other OPEC members as the civil war in Libya continued to put crude oil infrastructure at risk."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "Despite some renewed optimism in September, signs of economic slowdowns continued. The Organization for Economic Cooperation and Development announced its expectation that the pace of global growth in 2019 will be at the slowest over the past decade, with growth to remain muted in 2020. Over the quarter, central banks have tapped into their monetary tools in an effort to combat waning growth and to try and avoid a potential recession. The US Federal Reserve cut short-term interest rates by an additional 0.25% in September, the European Central Bank restarted its quantitative easing program and the People's Bank of China reduced its reserve requirement ratio to promote business lending. As such, governments and their central banks remain committed to attempting to support their economies as it becomes more likely that the US economy is either late in its growth cycle or nearing early stage contraction, a time when commodities tend to outperform traditional asset classes such as equities and fixed income."

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 September 30, 2019, the Team managed approximately USD 6.5 billion in assets globally.