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Commodities Rose on Tightening Crude Oil Inventories and Higher Demand Expectations for Metals

Commodities increased as OPEC+ reduced crude oil production and as demand expectations for industrial metals grew.


New York – WEBWIRE

The Bloomberg Commodity Index Total Return increased for the month, with 21 out of 23 constituents posting gains.

Credit Suisse Asset Management observed the following:

  • Energy increased 9.22%. Saudi Arabia and Russia were voluntarily reducing production and exports while Libyan and Iranian production also decreased.
  • Industrial Metals gained 8.05%, led higher by Nickel, after the Chinese government pledged additional stimulus measures following a $29 billion tax cut plan for small businesses, raising demand expectations for base metals.
  • Agriculture was 3.04% higher for the month. Soybean Oil gained as adverse dry weather conditions in Brazil hurt soybean crop growth during the main grain filling season.
  • Livestock declined 1.50%, led lower by Lean Hogs, as severe cold weather in the US Midwest region closed some pork production facilities, while also lowering pork consumption expectations.
  • Precious Metals increased 3.23% as the US dollar weakened due to higher market expectations for a slower trajectory in interest rate hikes in 2019 by the Fed.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “At the end of 2018, OPEC and its allies agreed to cut output by approximately 1.2M bbls/day relative to October 2018 levels. So far, data for December 2018 suggests they are on their way to meeting their stated objective. As markets continue to monitor compliance to the agreement, ongoing geopolitical tensions may also play a role. US sanctions on Venezuela’s state-owned oil company may potentially slow down the production of refined products in the US, as Texas and Louisiana refineries, which typically process heavier grades of crude from Venezuela, struggle to find alternative supplies. In addition, as US sanctions on Iran remain in place, various European nations have implemented a new trading mechanism, called the Instrument in Support of Trade Exchanges, to continue doing business with Iran. If the US deems this mechanism in violation of its sanctions, retaliatory punishments may be put in place. Any new trade barriers enacted by the US may weaken global growth prospects.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: “There is currently concern in many global regions about potentially slowing growth. Although British Prime Minister Theresa May’s separation plan was rejected in January, both the UK and Eurozone are heavily incentivized to find a resolution in order to avoid a hard landing. Following a large drop in the Eurozone’s industrial production reading for November, the ECB noted that there are now more downside risks to its economy. In China, effects from ongoing US-China trade tensions continued to harm its economy as the National Bureau of Statistics Purchasing Managers’ Index for January revealed that China’s manufacturing activity contracted for a second straight month. In the US, the Fed has committed to maintaining a patient approach to future monetary tightening. Central banks globally continue to seem more focused on preventing headwinds from slowing down growth than they are concerned about higher levels of inflation. Any upside surprises to growth may also result in greater-than-expected inflation, which should be supportive of the commodities asset class given its historically high correlation to unexpected inflation.” 

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 combined 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 January 31, 2019, the Team managed approximately USD 8.0 billion in assets globally.

Credit Suisse

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: EExposure 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.

Copyright © 2019, CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved.


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