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Commodities Increased in June due to Fundamental Factors and Macroeconomic Headlines
The Bloomberg Commodity Index Total Return performance was positive for the month, with13 out of 22 Index constituents posting gains.
Credit Suisse Asset Management observed the following:
- Precious Metals was the best performing sector, up 10.60%, led by Silver, as uncertainty due to the UK's vote to leave the EU contributed to a flight to safety. This increased expectations that the US Federal Reserve (Fed) may be less likely to raise interest rates this summer.
- Industrial Metals gained 6.76%, with all sector commodities yielding positive returns. Nickel led base metals higher as planned strikes in Colombia and warnings of mine closures in the Philippines heightened concerns over potential supply disruptions.
- Energy increased 2.93%, led by Natural Gas. Forecasts of warmer weather helped to reduce concerns over elevated end-of-season storage levels.
- Agriculture ended 1.78% higher. Coffee gained the most after heavy rains in Brazil's key growing regions damaged crop conditions in densely planted areas, drastically reducing the 2017 supply outlook. Sugar also increased amid continued below-average rainfall in India, potentially reducing production.
- Livestock was the worst performing sector, down 0.73%, led lower by Live Cattle, as the US Department of Agriculture reported higher cattle production figures during the middle of the month compared to the same period last year.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "The UK's decision to leave the EU has resulted in higher levels of volatility, furthering the expectations of loose monetary measures globally. Although strong US economic data had previously increased expectations for the Fed to raise interest rates this year, the timing of any rate hike will likely be delayed. Despite previous trends of policy divergence, this has resulted in both US and non-US central banks pursuing a course of potential further stimulus actions, remaining committed to increasing inflation to healthy levels as well as to propelling sustainable economic growth."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "The potential for a La Niña event later this summer may further tighten supply expectations across agricultural commodities. Geopolitical risks abroad may continue to impact energy-related commodities. Although the effects of recent supply outages may have eased, the supply/demand gap continues to narrow. With limited OPEC spare capacity, any geopolitical disruptions and/or unexpected outages may lead to potential supply shocks. Against such a backdrop, as the potential for weather-related disruptions and geopolitical concerns remain elevated, commodities as an asset class may help to diversify overall portfolio risk."
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy is managed by a team with over 29 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 June 30, 2016, the Team managed approximately USD 8.7 billion in assets globally.