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Commodities Rose on Reduced Supplies

Commodities rose in May as supplies were reduced due to higher temperatures and increased demand.

The Bloomberg Commodity Index Total Return performance was higher for the month, with 15 out of 22 Index constituents posting gains.

Credit Suisse Asset Management observed the following:

  • Energy increased 2.66%, led higher by Natural Gas, after persistent above-normal temperatures throughout the US raised cooling demand, slowing the pace of storage builds, which were already running below seasonal averages since April 1st, the start of injection season.
  • Industrial Metals rose 2.43%. Nickel gained as stockpiles tracked by the LME and SHFE continued to fall and as Chinese production of stainless steel increased.
  • Livestock was 2.22% higher, led up by Lean Hogs, after the USDA revised second quarter pork production forecasts down from the previous month's forecast.
  • Agriculture increased 0.58%, led higher by Cotton, which gained as continued dryness in Western Texas threatened crop conditions and reduced crop yield expectations.
  • Precious Metals declined 0.98%, led lower by Gold, despite a rise in geopolitical tensions between the US and China as well as in Italy; these forces were outweighed by a strengthening US Dollar.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "May was marked by various policy changes from the US administration, which affected commodity markets. Early in the month, the US reinstated nuclear-related sanctions against Iran. It remains unclear on how exactly that will impact Iranian crude oil production and exports in the short-term. The threat of reduced exports from Iran added to existing bullish sentiment regarding OPEC’s overall greater-than-expected output cuts due to the ongoing production shortfalls in Venezuela. In addition, rising energy prices have contributed to higher inflation readings within the US and the Eurozone in May compared to the year prior. As global energy demand continues to grow and inventories shrink, crude oil may become more susceptible to supply shocks, leading to potential periods of greater-than-expected inflation."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "Trade policies initiated by the US may have also served as an inflation driver. The US ultimately decided to impose steel and aluminum duties on key trading partners. Some countries already imposed their own retaliatory duties on US agricultural and industrial goods, while other nations are in the process of issuing their own. In addition, trade relations between the US and China worsened after the US stated it would impose tariffs on $50 billion worth of Chinese goods. The threat of more tariffs has increased inflation expectations globally while potentially bringing down growth expectations. Meanwhile, US consumer confidence levels gained in May, fueled by unemployment reaching 3.9%, the lowest level since December 2000. As consumer buying power increases and labor becomes more expensive, inflation expectations may increase."

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 May 31, 2018, the Team managed approximately USD 9.4 billion in assets globally.