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Commodities Decreased on Lower Demand Expectations for Metals and Increased Supply Prospects for Crude Oil

Commodities decreased as demand expectations for industrial metals fell amid softening global growth prospects and as supply expectations for crude oil grew.


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The Bloomberg Commodity Index Total Return was lower for the month, with 15 out of 22 constituents posting losses.

Credit Suisse Asset Management observed the following:

  • Industrial Metals declined 5.52% as the ongoing trade war between the US and China reduced industrial demand expectations as well as overall global growth expectations.
  • Energy decreased 5.51% as supply expectations for crude oil and petroleum products increased out of Saudi Arabia, Russia and the US, while demand prospects worsened due to growing global macroeconomic concerns.
  • Livestock was 0.69% lower, led down by Live Cattle, after the US Dollar strengthened versus other major world currencies, making US beef less competitive in international markets.
  • Precious Metals gained 0.77% as continued trade issues between the US and China, and renewed European fiscal and growth concerns, increased the safe haven demand for Gold, more than offsetting weakness from a stronger US Dollar.
  • Agriculture rose 2.17%, led higher by Sugar and Coffee, as the Brazilian Real strengthened versus the US Dollar, discouraging local farmers from selling down their inventories priced in US Dollars and subsequently reducing supply expectations.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “Buyers of Iranian crude oil have already cut imports to avoid political or economic consequences before sanctions on Iran resumed on November 5th. Sanctions compliance from China and India, the two largest importers of crude oil from Iran, will be important, with China being one of the bigger uncertainties given the ongoing trade dispute between it and the United States. It is expected that the US will allow some buyers to continue to import crude oil and petroleum products from Iran, but only if they show that they have cut imports from previous levels. The cut threshold required for the US to provide the waivers is a key unknown, with meaningful implications for how many additional barrels are needed from other producers to meet global demand. In addition, the outcome of the US midterm elections may alter the US administration’s stance against Saudi Arabia. Lately, Saudi Arabia has been cooperating with US interests by increasing its supply of crude oil, potentially helping to keep prices from going higher.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: “During October, the International Monetary Fund reduced its global growth forecast for this year and next, which has reduced base metals demand expectations. An important driver of base metal supplies may be the evolution of China’s environmental policies, which last winter successfully cut air pollution while reducing aluminum and zinc production. It’s expected that Chinese pollution policies this winter will target producers with less environmentally friendly processes to reduce production. In addition, the Chinese government appears to be committed to supporting its housing and manufacturing industries, which may be supportive of base metals demand, by announcing additional economic stimulus measures after multiple Chinese economic indicators showed weakness in recent months. Meanwhile, the current strength of the US economy may be supportive of cyclical commodities demand. In addition, wage growth continued to put pressure on the US Federal Reserve to continue to raise interest rates and finally normalize exceptionally loose monetary policies. Risk remains that many major central banks are behind in their tightening efforts, attempting to not impede economic growth. This may increase the risk that inflation may overshoot expectations, especially at this point in the economic cycle.”

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse’s Total Commodity Return Strategy is managed by a team with over 35 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, 2018, the Team managed approximately USD 8.6 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 45‘560 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 www.credit-suisse.com.

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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