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Credit Suisse sees consolidation in commodity markets


Credit suisseCOMMODITIES were lower in March, largely driven by fundamental supply factors and macroeconomic headlines, 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 9.22%, as a global oversupply of crude oil continued to serve as a headwind. Heating Oil also declined 11.68% as inventory levels recovered, moving closer to the five-year average as refineries continued to operate at high rates of utilization.

Agriculture dropped 5.37%, led lower by Sugar. Soybean Oil was also down after the March USDA report estimated soybean inventories were up 34% year-over-year.

Precious Metals was 1.81% lower for the month due to a drop in Gold as Fed policy still seemed to be heading towards a tightening bias, diverging from other major central bank strategies. However, towards the second half of the month, Gold prices recovered from intra-month lows while the U.S. Dollar reversed course from its strong dollar trend. This was primarily due to U.S. Federal Reserve Chair Yellen going out of her way to show that the Fed would remain patient in adhering to its loose monetary policy, despite removing the word “patience” from its official communication.

Industrial Metals decreased 1.07%, led lower by Nickel. China reduced its 2015 growth target to 7% from 7.5% in 2014 at the beginning of the month due to continued weak developments out of its housing and manufacturing sectors, indicating weaker base metals demand.

Livestock increased 1.31%, led higher by Live Cattle. Lean Hogs detracted from some of those gains after a California port slowdown limited pork export capabilities, causing local inventories to build.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management said: “Macroeconomic headlines became more prominent drivers of commodities returns during March. By the end of the period, austerity negotiations remained ongoing between Greece and its lenders. The European Central Bank’s monetary stimulus measures were well received by the market, but it’s too early to determine how this will affect the economic state of the European Union and commodities demand growth. Geopolitical uncertainty increased in the Middle East, with Yemen devolving into a state without its official leader and as deadlines loomed over Iran’s nuclear negotiations. Further conflict in the region may create supply shocks for crude. Further east, China expanded its money supply and credit creation, potentially improving demand expectations for commodities in the future.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “US economic data, including 2014 GDP growth and unemployment, continued to be decent. However, US Purchasing Managers Index came in lower-than-expected for March. Given that major central banks are focused on easing to stimulate their economies, the Fed would rather err on the side of tightening too late rather than too early to maintain inflation expectations. February’s Core CPI (ex-Food and Energy components) was 1.7%, close to the Fed’s 2% target. The jobs market has shown signs of wage growth, which may impact wage inflation. If payroll data and consumer spending pick up, inflation may surprise to the upside, which may be a tailwind for commodities.”

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