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Commodities Fell on Rising Production and Global Trade Tensions

Commodities fell in June as the production of agricultural commodities increased, while rising trade tensions among major economies threatened demand.


The Bloomberg Commodity Index Total Return performance was lower for the month, with 16 out of 22 Index constituents posting losses.

Credit Suisse Asset Management observed the following:

  • Agriculture declined 10.48%, led lower by Soybeans, as the ongoing trade conflict between the US and China continued to hurt the competitiveness of US products. The US Department of Agriculture also reported higher soybean production out of Brazil.
  • Industrial Metals fell 4.76%, led down by Zinc, after the International Lead and Zinc Study Group showed global production outpacing consumption during the first four months of the year.
  • Precious Metals dropped 3.29%. The US Federal Reserve (Fed) raised the Federal Funds Rate, while signaling it may hike at least one more time in 2018, decreasing the appeal of Gold and Silver as alternative stores of value.
  • Energy increased 2.70% for the month, led up by WTI Crude Oil, as increased US exports, doubts surrounding US producers’ ability to continue to grow production, and a power outage at a large Canadian producer pushed prices higher.
  • Livestock was 2.74% higher for the period. Live Cattle gained due to robust seasonal meat packer demand amid higher meat packer margins as demand for beef was strong.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “Trade tensions between the US and its major trading partners increased in June. In retaliation to US tariffs on $50 billion of Chinese goods, China announced reciprocal duties on American products, including several key agricultural commodities. In response, the US administration threatened tariffs on an additional $200 billion of Chinese exports, further escalating trade tensions. The European Union, Mexico, and Canada also released new counter measures to the US tariffs, seeking to protect their domestic industries. These duties may hamper economic growth. In June, the industrial production readings for the US and Eurozone came in below expectations. This may be concerning for the Eurozone as its industrial production readings have trended downward from the strong pace of growth witnessed in late 2017. Further tariffs between the US and other major economies may disrupt the global supply chain and lead to higher inflation expectations, while businesses may delay spending plans due to uncertainty regarding the cost and availability of inputs for finished goods.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: “The Fed’s preferred benchmark for measuring inflation, the core Personal Consumption Expenditures price index, reached the central bank’s 2.0% target for the first time in six years. Even though the Fed has now set expectations for at least one additional rate hike in 2018, the Fed may let inflation run slightly above its historical 2% goal, following a prolonged period of low inflation, in order to potentially avoid large, unexpected movements away from its target in either direction. In the Eurozone, the annual rate of inflation rose above the European Central Bank’s (ECB) targeted level for the first time in over a year. This positive reading came after the ECB revealed plans to close out its bond buying program by December 2018, while keeping a negative deposit rate in place into the summer of 2019. Assuming the trade war continues to escalate, central banks may be forced to choose between employing more dovish policies in an attempt to support economic growth or take a hawkish approach to stave off rising inflation. In either scenario, inflation may come in higher relative to market expectations.”

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 June 30, 2018, the Team managed approximately USD 9.6 billion in assets globally.

Credit Suisse AG

Credit Suisse AG is one of the world’s leading financial services providers and is part of the Credit Suisse group of companies (referred to here as ’Credit Suisse’). Our strategy builds on Credit Suisse’s core strengths: its position as a leading wealth manager, its specialist investment banking capabilities and its strong presence in our home market of Switzerland. We seek to follow a balanced approach to wealth management, aiming to capitalize on both the large pool of wealth within mature markets as well as the significant growth in wealth in Asia Pacific and other emerging markets, while also serving key developed markets with an emphasis on Switzerland. Credit Suisse employs approximately 46,370 people. The registered shares (CSGN) of Credit Suisse AG’s parent company, Credit Suisse Group AG, are listed in Switzerland and, in the form of American Depositary Shares (CS), in New York. Further information about Credit Suisse can be found at

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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