October Sees Fundamental Factors Drive Commodity Markets

Nov 10, 2015, 11:06 ET from Credit Suisse AG

NEW YORK, Nov. 10, 2015 /PRNewswire/ -- Commodities were relatively flat in October, largely driven by fundamental factors, according to Credit Suisse Asset Management. 

The Bloomberg Commodity Index Total Return performance was slightly negative for the month, with 12 out of 22 Index constituents trading lower.

Credit Suisse Asset Management observed the following:

  • Energy was the worst performing sector, down 3.32%. Natural Gas led the sector lower due to mild weather and inventory levels near their highest in the past decade for this time of year.
  • Industrial Metals decreased 2.81%, led lower by Aluminum. Increased aluminum smelting capabilities out of China, the world's largest producer, raised concerns over a deepening of the global oversupply of aluminum.
  • Livestock increased 0.77%, led by Live Cattle. Physical deliveries of cattle against the expiring futures contract were relatively small toward the beginning of the month, suggesting that supplies may not be as ample as previously forecasted.
  • Agriculture ended the month 1.58% higher, led by Softs, amid unfavorable weather conditions. Sugar increased the most as disruptive weather, potentially impacted by El Niño, including dryness in India and excess rainfall in Brazil, the two largest growing regions in the world, continued to reduce sugar output expectations.
  • Precious Metals was the best performing sector, up 3.59%. Weaker-than-expected U.S. economic data reported during the first half of the period reduced expectations of a near-term interest rate hike, depressing the U.S. Dollar and increasing safe haven demand. Sentiment regarding U.S. monetary policy shifted later in the month, leading the U.S. Dollar to recover and ultimately finish the month stronger, while Gold and Silver still posted gains.      

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "October continued to be characterized by fundamental factors, particularly supply surpluses in the Energy and Industrial Metals sectors. In the near-term, weather-related risks, including the global El Niño event, will continue to impact returns for the Agriculture sector. Global growth expectations will also be a focus of commodity returns. China's economic growth fell to a six-year low as signs of manufacturing activity remained weak, which led the People's Bank of China ("PBoC") to lower lending rates and the reserve requirement to stimulate its economy. In Europe, although economic data indicated modest expansion, manufacturing activity growth flattened after gaining momentum in the spring. As a result, the European Central Bank ("ECB") re-affirmed its commitment to quantitative easing measures in an ongoing effort to boost its economy and minimize disinflation concerns."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "Within the U.S., monetary policy may start to shift toward tightening measures. The Federal Open Market Committee's ("FOMC") statement released on October 28th removed the reference to global growth concerns that the U.S. Federal Reserve cited during its mid-September meeting, increasing expectations for an interest rate rise to occur in December. Although the U.S. has signaled improvement in the labor market, inflation expectations continue to remain below the U.S. Federal Reserve's two percent target. Therefore, despite current rate hike expectations, the U.S. Federal Reserve may remain on a slow course toward fully normalizing interest rates. Should the U.S. economy continue to show signs of improvement, inflation expectations may increase faster than anticipated." 

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 October 31, 2015, the Team managed approximately USD 9.4 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 without obligation to update. 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 a guide to future performance. 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. Certain information contained in this document constitutes "Forward-Looking Statements" (including observations about markets and industry and regulatory trends as of the original date of this document), which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend", "continue" or "believe", or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Credit Suisse has no obligation to update any of the forward-looking statements in this document.

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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