Credit Suisse Asset Management observed the following:
- Industrial Metals rose 7.45% due to a weakening US Dollar and greater-than-expected increases in Chinese manufacturing data for the month of December, supporting increased demand expectations for base metals broadly.
- Precious Metals gained 6.27% as the US Dollar gave back some of its recent strength and amid increased uncertainty surrounding future US economic policy.
- Agriculture was 3.32% higher, led by Coffee, after Brazil's main growing region continued to suffer from arid conditions, potentially affecting crop yields.
- Livestock eased 1.32%, led lower by Lean Hogs, amid concerns regarding the sustainability of strong US pork exports, which began in the spring of 2016.
- Energy was the worst performing sector, declining 7.60%. Natural Gas decreased as most of the US experienced warmer-than-normal temperatures throughout the month, weighing on heating demand and increasing end-of-season storage level expectations.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "January featured increased uncertainty surrounding the global political environment as the new US administration stepped in, and 'Brexit' negotiations and election processes in major European nations accelerated. The global economy can potentially see a big shift in government policy-making. Already, a view towards stricter environmental standards out of China and the Philippines has reduced expected supplies for certain base metals. Tightening global supply balances will likely be a feature of the first half of 2017, with upcoming major labor contract renegotiations in Chile and weather-related impacts starting to affect certain agricultural commodities. In oil markets, the impact of the tightening will be dependent on the compliance of the coordinated cuts and the significance of the US producers' response. As of the end of January, there remained significant uncertainty on some potential US policies that may impact crude oil and the petroleum markets. However, the energy returns will most likely be driven by fundaments and changes to production from key producers."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "Inflation pressures remain generally mild for the Eurozone, Japan and other parts of Asia. Within the US, many signs point to the potential for higher inflation. US job market and wage growth data indicate the labor market may already be at or near full employment. With the new US administration focused on job creation and increasing economic growth, trends in increasing wages and prices may accelerate. While markets await further details on these programs, deregulation, infrastructure spending and tax cuts may be inflationary. In response, the US Federal Reserve may be mindful to not raise interest rates too quickly. Commodities may serve as a good hedge against potential unexpected inflation, especially during this time of uncertainty."
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy is managed by a team with over 30 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, 2017, the Team managed approximately USD 8.8 billion in assets globally.
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This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not necessarily a guide to the future. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.
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Certain risks relating to investing in Commodities and Commodity-Linked Investments: Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative's original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy.
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