Commodity Markets Declined in November Due to Fundamental Factors and Macroeconomic Headlines

Dec 08, 2015, 11:38 ET from Credit Suisse AG

NEW YORK, Dec. 8, 2015 /PRNewswire/ -- Commodities were lower in November, largely driven by fundamental supply and demand factors and macroeconomic headlines, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was negative for the month, with 20 out of 22 Index constituents trading lower.

Credit Suisse Asset Management observed the following:

  • Energy was the worst performing sector, down 10.64%. WTI Crude Oil declined the most amid continued excess supplies. U.S. inventories continued to increase, remaining well above the 10-year average level for this time of year.
  • Industrial Metals decreased 8.68%, with all components trading lower. Copper declined the most as Chinese manufacturing data continued to disappoint, suggesting that announced production cuts may not be enough to sufficiently reduce excess global capacity.
  • Livestock ended the month 7.91% lower. Live Cattle declined due to continued excess supplies. The U.S. Department of Agriculture ("USDA") announced that beef storage levels increased in October compared to the previous month. The trend toward heavier cattle weights also persisted, as the latest Cattle on Feed Report indicated a rise in placement figures for the heaviest weight category compared to the previous year.
  • Precious Metals declined 7.53%, led lower by Silver. Increased expectations that the U.S. Federal Reserve will raise interest rates in December continued to support the U.S. Dollar and weigh on precious metals demand.
  • Agriculture decreased 2.71%. Chicago Wheat led the sector lower after the USDA's outlook for U.S. inventories of wheat reserves came in above expectations, and projections for U.S. exports were lowered. In addition, rainfall across the U.S. Midwest and Southern regions at the beginning of the month eased previous concerns over dry weather and may have helped the progress of winter wheat plantings. 

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Fundamental factors continued to drive commodity returns in November. El Nino weather patterns, which impacted production regions of Brazil and India during the month, may continue to affect returns in the Agriculture sector. Milder-than-expected winter weather in the U.S. decreased heating demand for Natural Gas amid continued storage buildups. Supply surpluses also persisted for crude oil and petroleum products. OPEC was set to meet at the beginning of December and announce any planned changes to production. Expectations remained that OPEC would stick to its strategy to maintain market share, despite increasing calls from members to decrease production. Meanwhile, tensions and geopolitical risks in the Middle East intensified. Should military action in the Middle East escalate, oil supplies in the region may potentially experience disruptions."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "Macroeconomic headlines also continued to impact commodity returns. Policy divergence among global central banks may become a more prominent theme if the U.S. Federal Reserve decides to raise interest rates in December. Stronger-than-expected U.S. economic data reflected continued economic improvement in the U.S. Meanwhile, central banks in Europe and Asia may introduce further easing measures to stimulate their economies. China's continued slowdown strengthened the case for further accommodative measures from the People's Bank of China. In addition, the market expects further stimulus measures out of the Eurozone, as European Central Bank President Mario Draghi has signaled that policymakers hope to increase inflation from current low levels as quickly as possible." 

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 November 30, 2015, the Team managed approximately USD 7.7 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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