Commodities in Decline as Fundamentals Weaken

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Commodities eased in May on weakening fundamentals across most sectors, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was negative for the month, with 14 out of 22 Index constituents posting losses.

Credit Suisse Asset Management observed the following:

  • Energy decreased 3.28%, led lower by Natural Gas, as milder-than-normal weather forecasts for the first half of June reduced early summer cooling demand expectations.
  • Agriculture declined 2.17%. Sugar, Soybeans and its byproducts along with Coffee faced headwinds as producers were incentivized to sell down their stockpiles amidst a sharply weaker Brazilian Real.
  • Industrial Metals eased 1.04%, led lower by Nickel, which declined after Indonesia began to ease its export restrictions.
  • Precious Metals increased 0.50% after multiple terrorist attacks and continued geopolitical tensions with North Korea increased the appeal of both Gold and Silver as safe haven assets.
  • Livestock gained 7.42%. Lean Hogs increased after the USDA reported lower pork production and a reduction of frozen pork in storage for April.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “US exploration and production companies continued to grow crude oil exports. As the global supply and demand balance of crude oil continues to tighten, partially due to the extension of the OPEC-led production agreement, the US should be increasingly called upon as the marginal supplier to the world. In the mining sector, labor disputes continued in Chile and Indonesia, slowing down the production of copper, while changes in government personnel may help loosen nickel mining restrictions in the Philippines. In Livestock, beef and pork exports also continued to run well above average in May, and the opening up of China to beef exports could help escalate this trend. Stronger demand and food quality concerns may be underpinning this shift in stance.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: “Macroeconomic factors were mixed around the world, with continued improvements in Europe, heightened concerns surrounding China’s economy, and increasing signs of a relatively strong and stable United States economy despite continued political uncertainty. Emmanuel Macron won the French presidential election early in May, decreasing the European political risk premium and boosting the Euro. This rise in confidence helped add to already strengthening European manufacturing data. Within the US, the unemployment rate reached a low of 4.3%, a level not seen since pre-financial crisis, implying wage pressures may be increasing, which could be supportive of inflation. The US Federal Reserve signaled it will likely raise rates in June, with the market’s implied probability of an early summer hike rising throughout the month. However, monetary policy remains accommodative for most of the developed world as central banks remain cautious of unhinging any progress in economic recoveries.”

About the Credit Suisse Total Commodity Return Strategy
Credit Suisse’s Total Commodity Return Strategy is managed by a team with over 30 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 May 31, 2017, 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’). As an integrated bank, Credit Suisse offers clients its combined expertise in the areas of private banking, investment banking and asset management. Credit Suisse provides advisory services, comprehensive solutions and innovative products to companies, institutional clients and high-net-worth private clients globally, as well as to retail clients in Switzerland. Credit Suisse is headquartered in Zurich and operates in over 50 countries worldwide. The group employs approximately 46,640 people. The registered shares (CSGN) of Credit Suisse’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

Asset Management
In its Asset Management business, Credit Suisse offers products across a broad spectrum of investment classes, including hedge funds, credit, index, real estate, commodities and private equity products, as well as multi-asset class solutions, which include equities and fixed income products. Credit Suisse’s Asset Management business manages portfolios, mutual funds and other investment vehicles for a broad spectrum of clients ranging from governments, institutions and corporations to private individuals. With offices focused on asset management in 21 countries, Credit Suisse’s Asset Management business is operated as a globally integrated network to deliver the bank’s best investment ideas and capabilities to clients around the world.

All businesses of Credit Suisse are subject to distinct regulatory requirements; certain products and services may not be available in all jurisdictions or to all client types.

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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