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Commodities Decreased on Production Concerns and Weakening Demand


Commodities decreased in February on expectations of increased US shale production and weakening demand for metals due to a stronger US Dollar.

The Bloomberg Commodity Index Total Return performance was lower for the month, with 13 out of 22 Index constituents posting losses.

Credit Suisse Asset Management observed the following: 

  • Energy fell 7.15% as mild US temperatures reduced heating demand for Natural Gas and on increased expectations that higher crude oil prices may continue to incentivize US shale production, impeding the progress of the global inventory rebalance.
  • Precious Metals decreased 2.56% as the US Dollar strengthened on news that the US Fed may implement faster-than-expected interest rate hikes to contain rising inflation.
  • Industrial Metals declined 2.17% as a stronger US Dollar made base metals more expensive.
  • Livestock fell 1.92%, led lower by Lean Hogs, after the USDA reported a decline in US pork exports in December 2017 compared to the year prior, potentially indicating softening demand.
  • Agriculture increased 4.71%, led higher by Soybean Meal, as Argentina faced its worst drought in ten years, hurting soybean crop production expectations.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “Central banks appear to be more cautiously optimistic with increasing evidence of synchronized growth across major economies. US Federal Reserve Chairman Powell provided bullish commentary regarding the state of the US economy and confirmed that the Fed intends to continue to gradually increase interest rates in 2018. However, markets remain wary of faster-than-expected rate hikes if inflationary pressures increase. Commodities have historically outperformed during periods of higher-than-expected inflation.

Stronger-than-expected global oil demand along with high compliance rates to the OPEC-led production cuts helped with the global inventory rebalance, and this is expected to continue throughout 2018. Risk still remains regarding the growth of US oil production outperforming expectations. As global growth accelerates, there are also rising prospects for further infrastructure development and capital spending, particularly within China and the US. This may elevate demand for industrial metals, while supplies in this sector remain tight due to government-mandated production restrictions in Asia.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: “As central banks look to adjust monetary policy, risks still remain globally. Fourth quarter UK GDP was revised lower, causing it to lag the economic growth achieved by its peer countries. China saw a larger-than-expected fall in January manufacturing PMI activity as well as softening export demand. Even within the US, new and previously owned home sales reached new lows in January. Market participants will closely keep watch of these situations to ensure the timing of monetary tightening won’t impede or stall the progression of growth. Hence, the pace of tightening by the central banks may not be fast enough, which may lead to more inflationary pressures.”

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse’s Total Commodity Return Strategy is managed by a team with over 32 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 February 28, 2018, the Team managed approximately USD 8.9 billion in assets globally.  


Credit Suisse AG

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Important Legal Information

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.

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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