July Sees Consolidation in Commodity Markets

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Aug 12, 2014, 09:16 ET

NEW YORK, Aug. 12, 2014 /PRNewswire/ -- Commodities declined in July as fundamental risks subsided, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was negative for the month, with 17 out of 22 Index constituents trading lower.

Credit Suisse Asset Management observed the following:

Energy was the worst performing sector, down 7.80%. Despite concern that geopolitical risks and events in the Middle East could lead to strength in crude oil, we have largely seen the opposite as many of these fears have yet to result in actual material reductions in production.
Agriculture decreased 7.31% as grains continued to trade lower following the June 30^th USDA Quarterly Grains Stocks and Acreage Report which revealed generally larger supply expectations due to rapid planting progress and mild weather.
Livestock declined 3.51%, led lower by Lean Hogs. The outlook for pork supplies improved after reports of a drop in PED virus cases due to warmer temperatures and better management of the supply chain, hindering the spread of the disease.
Precious Metals ended the month 3.06% lower as Eurozone debt worries eased, dampening the appeal of Gold and Silver as safe haven assets. Economic data in the US was also good enough for the US Federal Reserve to continue on its course of tapering its quantitative easing program.
Industrial Metals was the best performing sector, up 2.22%, as positive PMI releases from the Eurozone and China supported the economically sensitive sector.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management said: "July was a general period of consolidation for commodities. On balance, news was positive as risks relating to weather subsided with mild temperatures across the US supporting good growing conditions for crops, while many of the geopolitical risks threatening commodity supplies did not impact production. In fact, there was increased speculation that supplies of crude oil might increase, with key ports in Libya coming online and possible exports of crude oil out of northern Iraq. On the downside however, militant groups continued to threaten stability in Iraq while the downing of a passenger plane in the Ukraine was another reminder that things remained anything but calm in that region. Markets may not be overly concerned at this time with these geopolitical risks, though this could change rapidly."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "The Federal Reserve may look to keep its options open for as long as possible, despite the unemployment rate improving to 6.2% as of the latest reading, down from a peak of 10% in 2009. Its members have made it clear that they will tolerate higher inflation in an attempt to further improve employment. Idiosyncratic risks have been driving commodities so far this year and may continue to do so for the foreseeable future. However, the US economy may be reaching a turning point, with a reduction in spare capacity amid heightened growth. Broader global GDP prospects are also slowly improving, including in China. The combination of these forces may increase the possibility for greater than expected inflation."

About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy has been managed for over 19 years 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 July 31, 2014, the Team managed approximately USD 11.5 billion in assets globally.

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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 without obligation to update. 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 a guide to future performance. 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.

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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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SOURCE Credit Suisse AG