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Commodities Rose on Production Concerns

Commodities rose in January as adverse weather conditions threatened the production of various commodities, 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: 

  • Energy increased 4.51% as global inventories of crude oil and petroleum products continued to tighten amid strong demand. Natural Gas rose as frigid winter weather hampered output at the Appalachian and Permian Basins while simultaneously increasing heating demand.   
  • Precious Metals gained 1.93% as the US Dollar continued to weaken.
  • Agriculture rose 1.35%, led higher by Wheat, as dry and freezing weather conditions threatened crop yields across the US Great Plains.   
  • Industrial Metals increased slightly by 0.22%, as the sector was broadly supported by stronger-than-expected US manufacturing data for January and amid US Dollar weakness.
  • Livestock declined 1.29%, led lower by Lean Hogs, due to US production and inventories increasing versus last year. 

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "The beginning of 2018 ushered in below freezing temperatures and hazardous winter conditions for a large portion of the US. Natural gas heating demand spiked while production in the Northeast and Texas was hindered. End-of-month inventories came in below the five-year historical average, relieving some concerns of a supply glut. The freeze made it a challenge for cattle to maintain their weight and forced farmers to spend more on grains for feed. However, frigid temperatures did not bring along snow cover in the US Grain Belt, leaving young wheat crops without their winter protection. Another cold snap late into the winter season could hamper beef output levels in the future and threaten crop yields further.

Beyond the weather shock, natural gas pipeline construction projects that were scheduled to be completed in the first quarter of this year faced additional regulatory hurdles, delaying relief to supply bottlenecks in the US Northeast. In addition, the country's second Liquefied Natural Gas export facility in Maryland faced construction issues, causing additional supplies to remain on US soil. Elsewhere in Energy, stronger-than-expected crude oil and petroleum demand along with high compliance rates to the OPEC-led production cuts continued to help with the global rebalance. US production continued to grow, though exploration and production companies have showed more restraint than in the past in terms of expanding production so far."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "Globally, major economies are showing synchronized growth, which may encourage central banks to slowly tighten while still remaining accommodative. The Bank of Japan surprised markets after it unexpectedly decreased the amount of government bonds it purchased, providing evidence that the Japanese government may be slowly beginning to taper its quantitative easing program. Within the US, a combination of wage growth and rising consumer spending has increased inflationary pressures. At the beginning of the month, inflation expectations rose to over 2%, above the stated target by the US Federal Reserve (Fed). Consumer confidence levels reduced slightly, but still remains near its highest levels since the financial crisis. The new Fed Chair Jerome Powell is largely expected to keep in line with Janet Yellen's dovish and cautious policy style. However, continued higher inflation readings may force the Fed to react more quickly to prevent an overheating of the US economy."

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 January 31, 2018, the Team managed approximately USD 8.9 billion in assets globally.