Consolidation in Commodity Markets

Consolidation in Commodity Markets

Commodities were lower in July, driven by macroeconomic factors and supply fundamentals, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was negative for the month, with 21 out of 22 Index constituents trading lower.

Credit Suisse Asset Management observed the following:

• Energy was the worst performing sector, down 14.47%, led lower by WTI Crude Oil. In addition to continued increased OPEC production, towards the end of the month there was also a slight rise in U.S. rig counts.
• Agriculture decreased 11.11%, led lower by Kansas City Wheat and Chicago Wheat as limited rainfall in the U.S. Midwest supported harvest progress. Sugar also weighed on the sector as recent rainfall in Thailand contradicted expectations that El Nino would limit sugar crop growth.
• Industrial Metals declined 7.30%, led lower by Copper as concerns that the recent volatile decline in the Chinese equity market may further dampen economic growth, decreasing demand expectations for the sector.
• Precious Metals ended the month 6.37% lower. Improved U.S. economic data, including lower jobless claims and higher housing starts, bolstered expectations that the Federal Reserve may raise interest rates later this year as the economy continues to recover. The prospect of higher interest rates strengthened the U.S. dollar and reduced safe haven demand for gold and silver.
• Livestock decreased 2.17%, led lower by Live Cattle, as the United States Department of Agriculture reported further supply increases compared to the same time last year.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “Major macroeconomic headlines, such as the Greek debt negotiations and the decline in Chinese equity markets, raised global growth concerns. Although the turmoil surrounding the impasse in Greece impacted consumer confidence across the Eurozone, preliminary Purchasing Managers’ Index data showed that economic growth in Europe only lost slight momentum in July. The European Central Bank’s easing measures may continue to support future growth prospects. In China, economic data reflected declines in the manufacturing sector amid decreased consumer demand and weakened equity market conditions. However, the Chinese government has also shown resolve in its commitment to supporting the economy through various stimulus measures.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “Meanwhile, in the U.S., inflation expectations remain below the U.S. Federal Reserve’s 2% target. However, the pace of economic progress in the U.S. versus the rest of the world increased expectations of divergent central bank policy. Macroeconomic factors may also continue to affect commodity demand expectations. So far, in the current phase of the business cycle, most U.S. asset classes have outperformed relative to non-U.S. asset classes. Central bank efforts may broaden the economic recovery into other regions, which may be supportive of commodity demand longer-term.”

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse’s Total Commodity Return Strategy is managed by a team with over 28 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 July 31, 2015, the Team managed approximately USD 10.0 billion in assets globally.

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