Commodity Market Increased Slightly in June as Supply Risks Rebounded

Jul 09, 2014, 11:45 ET from Credit Suisse AG

NEW YORK, July 9, 2014 /PRNewswire/ -- Commodities were slightly higher in June, supported by idiosyncratic supply risks.

Nelson Louie, Global Head of Commodities in Credit Suisse's Asset Management business, said, "Commodities continued the broader trend of the year in  June, and were generally supported by one-off event driven risks which negatively affected supplies. Agriculture was the one exception as supply expectations generally increased during the month.  We expect idiosyncratic risks to continue to drive commodity returns going forward.  For example, crude oil may continue to stay well-supported as geopolitical risks seem skewed to the upside, with the uncertainty in Iraq the most likely to dominate in the near term.  Elsewhere, geopolitical risks remain heightened in various parts of the Middle East along with Ukraine and Russia.  This has helped increase crude oil prices across the curve, while the forward curve remains steeply backwardated."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "Global Industrial Production momentum may rebound over the next half of the year as China and Europe's economies respond to easing measures.  As global growth improves, demand for physical commodities should also increase.  However, emerging market growth momentum may continue to lag that of developed markets and a broad-based, synchronized global recovery may not be imminent.  As such, we believe idiosyncratic fundamentals of individual commodities will continue to influence returns, and correlations between commodities and traditional classes will continue to breakdown.  This, along with the elevated potential of inflation overshooting expectations, should support the diversification benefits of commodities going forward."

The Bloomberg Commodity Index Total Return gained 0.60% in June.  Overall, 12 out of 22 index constituents posted positive returns.  Precious Metals was the best performing sector, up 7.70%.  Fears surrounding the sectarian violence in Iraq and uncertainty regarding the role the West would play going forward supported the safe-haven appeal of gold and silver, as did continued dovish communications from the Federal Reserve.  The Livestock sector gained 7.41%.  In addition to Live Cattle, Lean Hogs gained as a result of reduced slaughter rates and continued impacts from a pig virus.  Industrial Metals increased 2.57%, led by Zinc.  Copper was the second best performer as inventories on the London and Shanghai exchanges continued to decline.  Energy ended the month 2.02% higher.  Sectarian violence in Iraq supported crude oil and petroleum product returns. A Sunni militant group seized a number of large northern cities and moved toward the Shia-dominated southern part of Iraq.  Although oil exports have not yet been disrupted, the potential for extended unrest led to increased risk premiums.  Agriculture declined 6.27%, with key grain components trading lower. 

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy has been managed for over 19 years 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 June 30, 2014, the Team managed approximately USD 11.7 billion in assets globally. 

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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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