Commodities increased in November due to higher economic growth expectations and announced crude production cuts, according to Credit Suisse Asset Management.
The Bloomberg Commodity Index Total Return performance was positive for the month, with 13 out of 22 Index constituents posting gains.
Credit Suisse Asset Management observed the following:
Industrial Metals increased the most, up 10.33%, led by Copper. The prospects for increased infrastructure spending in China and the US supported base metals broadly.
Energy gained 4.26%, as petroleum products gained following announced production cuts by OPEC that came in above market consensus. Natural Gas also rose, as forecasts for colder-than-normal weather in December increased US heating demand expectations.
Precious Metals decreased the most, losing 7.99%, as data continued to indicate the US economy was doing well enough to tolerate some normalization of monetary policy, reducing the demand for safe haven assets.
Livestock ended 4.27% higher, led by Live Cattle, after the USDA reported that placements in feedlots reached a record low in November, decreasing US beef supply expectations.
Agriculture ended 2.85% lower, led down by Coffee, as forecasts for heavy rains in key coffee producing regions of Brazil led to improved growing conditions.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: “The spotlight was on energy markets leading up to the November 30th OPEC meeting. As part of the agreed upon deal, OPEC and non-OPEC members pledged to reduce global crude production by 1.8 million barrels per day effective January 1, 2017 for six months. Compliance with the cuts would likely bring global supply into deficit in the first half of 2017, sooner than previously expected. Adherence to the announced cuts will be instrumental for the medium-term outlook, and actual producer behavior will be vital, including the reaction of US crude producers, in terms of determining the efficacy of OPEC’s renewed attempt to manage markets. However, its recent actions have already re-affirmed its relevancy and have at least temporarily converted the global supply/demand balance from being a headwind to a tailwind.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: “US inflation has increased from earlier this year, no longer running below the US central bank’s 2% target. Markets have priced in another interest rate hike in December. However, the Fed appears to have an appetite to let inflation overshoot its set target for some time. While it remains to be seen what agenda the new US administration will implement, early signals indicate job creation and economic growth. These policies, which may include tax cuts, an infrastructure spending bill and increased defense budgets, could be inflationary, absent a sharp change in monetary policy. Market participants appear to have begun to reprice inflation risks due to these events. As one of the most significant drivers of unexpected inflation risk, commodities as an asset class could be valuable in the upcoming investment cycle.”
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse’s Total Commodity Return Strategy is managed by a team with over 29 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 November 30, 2016, the Team managed approximately USD 9.0 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 47,690 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 www.credit-suisse.com.
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 19 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 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.
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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